PDF document

- 1 -

               Userid: SD_W3CHB schema tipx Leadpct: 30% Pt. size: 8                           o Draft       o Ok to Print
PAGER/XML      Fileid:        C:\Documents and Settings\w3chb\My Documents\950 (2011)\P950.xml (Init. & date)

Page 1 of 5 of Publication 950                                                                 10:03 - 21-NOV-2011

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

               Publication 950
               (Rev. October 2011)             What’s New
Department     Cat. No. 14447X
                                               •
of theTreasury                                   The annual gift exclusion remains $13,000
                                                 in 2011 and 2012. See Annual exclusion,
Internal
Revenue        Introduction                      later, for more information.
Service
                                               • The basic exclusion amount for gifts made
               to Estate                         and estates of decedents who died in cal-
                                                 endar year 2011 is $5,000,000, and
                                                 $5,120,000 for gifts made and estates of
               and Gift                          decedents who die in 2012.
                                               • Beginning in 2011, the Deceased Spousal
               Taxes
                                                 Unused Exclusion (DSUE) amount may be
                                                 added to the basic exclusion amount to
                                                 determine the applicable exclusion
                                                 amount. The DSUE is only available if an
                                                 election is made on the Form 706 filed by
                                                 the deceased spouse’s estate.
                                               • The IRS has a created a page on IRS.gov
                                                 for information about Publication 950, at
                                                 www.irs.gov/pub950. Information about
                                                 any future developments affecting Publica-
                                                 tion 950 (such as legislation enacted after
                                                 we release it) will be posted on that page.

                                               Introduction
                                               If you give someone money or property during
                                               your life, you may be subject to federal gift tax.
                                               The money and property you own when you die
                                               (your estate) may be subject to federal estate
                                               tax and the gross income of your estate may be
                                               subject to federal income tax. The purpose of
                                               this publication is to give you a general under-
                                               standing of when these taxes apply and when
                                               they do not. It explains how much money or
                                               property you can give away during your lifetime
                                               or leave to your heirs at your death before any
                                               tax will be owed. Gifts you make during your life
                                               or bequests from your estate can also be subject
                                               to the generation-skipping transfer (GST) tax, if
                                               the gifts or bequests are to a person, such as a
                                               grandchild, who is more than one generation
                                               younger than you.

                                               No tax owed.                                      Most gifts are not subject to the
                                               gift tax and most estates are not subject to the
                                               estate tax. For example, there is usually no tax if
               Get forms and other information you make a gift to your spouse or to a charity or if
                                               your estate goes to your spouse or to a charity at
               faster and easier by:
                                               your death. If you make a gift to someone else,
               Internet       IRS.gov          the gift tax usually does not apply until the value
                                               of the gifts you give that person exceeds the
Nov 21, 2011

- 2 -

Page 2 of 5 of Publication 950                                                                                                                                                                               10:03 - 21-NOV-2011

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

annual exclusion for the year. See Annual exclu-                                                  • When to file a return for the gift tax or the                                                   Beginning in 2011, the amount of unified
sion under Gift Tax, below.                                                                         estate tax,                                                                                   credit available to a person will equal the tax on
Even if tax applies to your gifts or your es-                                                                                                                                                     the basic exclusion amount plus the tax on any
                                                                                                  • When the GST tax may apply, and
tate, it may be eliminated by the unified credit,                                                                                                                                                 deceased spousal unused exclusion (DSUE)
also known as the applicable credit amount,                                                       • When the income tax may apply to an                                                           amount.  The DSUE is only available if an elec-
discussed below. However, many estates are                                                          estate.                                                                                       tion was made on the deceased spouse’s Form
subject to federal income tax. See Income Tax                                                                                                                                                     706.
on an Estate.                                                                                     This publication does not contain any informa-                                                    The unified credit on the basic exclusion
                                                                                                  tion about state or local taxes. That information                                               amount for 2011 is $1,730,800 (exempting $5
No return needed.   Gift tax returns are filed                                                    should be available from your local taxing au-                                                  million from tax) and is $1,772,800 for 2012
annually. However, you generally do not need to                                                   thority.                                                                                        (exempting $5,120,000 from tax). 
file a gift tax return unless you give someone,                                                                                                                                                   The following table shows the unified credit (re-
other than your spouse, money or property                                                         Where to find out more.     This publication                                                    calculated at current rates) for the calendar
                                                                                                  does not contain all the rules and exceptions for
worth more than the annual exclusion for that                                                                                                                                                     years in which a gift is made or a decedent dies
                                                                                                  federal estate, gift, income, or GST taxes. Nor
year, or a gift not subject to the annual exclu-                                                                                                                                                  after 2001.
                                                                                                  does it contain all the rules that apply to nonresi-
sion. An estate tax return generally will not be
needed unless the estate is worth more than the                                                   dent aliens. If you need more information, see                                                  Table of Unified Credits
basic exclusion amount for the year of death.                                                     the following publication, forms, and instruc-                                                  (Recalculated at Current Rates)
                                                                                                  tions.
However, you may wish to file a return if a
deceased spouse’s estate has any unused ex-                                                       • Publication 559, Survivors, Executors, and                                                    Period            Recalculated
clusion amount that the surviving spouse could                                                      Administrators;                                                                                                 Unified Credit
use. If an estate tax return must be filed, it is                                                   Form 709, United States Gift (and Genera-                                                     1977 (Quarters 1 and $6,000
generally due 9 months after the date of death.                                                   • tion-Skipping Transfer) Tax Return;                                                           2)
No tax payable by the person receiving your                                                       • Form 706, United States Estate (and Gen-                                                      1977 (Quarters 3 and $30,000
gift or bequest.  Generally, the person who                                                         eration-Skipping Transfer) Tax Return;                                                        4)
receives your gift or your bequest will not have to
pay any federal gift tax or estate tax because of                                                 • Form 706-NA, U.S. Estate (and Genera-                                                         1978              $34,000
it. Also, that person will not have to pay income                                                   tion-Skipping Transfer) Tax Return for                                                        1979              $38,000
tax on the value of the gift or inheritance re-                                                     Nonresidents, not a Citizen of the U.S.;
ceived. However, covered gifts or bequests re-                                                      and                                                                                           1980              $42,500
ceived from expatriates after June 16, 2008,                                                      • Form 1041, U.S. Income Tax Return for                                                         1981              $47,000
may be subject to tax which must be paid by the                                                     Estates and Trusts.
recipient. Consult a qualified tax professional for                                                                                                                                               1982              $62,800
more information.                                                                                 To order these forms, call 1-800-TAX-FORM                                                       1983              $79,300
                                                                                                  (1-800-829-3676). If you have access to TTY/
No income tax deduction.    Making a gift or                                                      TDD equipment, you can call 1-800-829-4059.                                                     1984              $96,300

leaving your estate to your heirs does not ordi-narily affect your federal income tax. You cannot You can also get forms, instructions, and publi-cations or research answers to tax questions by 1985              $121,800
deduct the value of gifts you make (other than                                                    visiting the IRS website at IRS.gov.                                                            1986              $155,800
gifts that are deductible charitable contributions)
or any federal gift resulting from making those                                                                                                                                                   1987 through 1997 $190,800
gifts. You also cannot deduct the value of any
                                                                                                                                                                                                  1998              $199,500
bequests made or estate tax resulting from mak-
ing bequests.                                                                                     Unified Credit                                                                                  1999              $208,300

What this publication contains.    If you are                                                     (Applicable Credit                                                                              2000 and 2001     $217,050
not sure whether the gift tax, the estate tax, the
income tax, or the GST tax applies to your situa-                                                 Amount)                                                                                         2002 through 2010 $330,800
tion, the rest of this publication may help you. It                                                                                                                                               2011              $1,730,800
                                                                                                  A credit is an amount that reduces or eliminates
explains in general terms:
                                                                                                  tax. The unified credit applies to both the gift tax                                            2012              $1,772,800
•   When tax is not owed because of the uni-                                                      and the estate tax and it equals the tax on the
    fied credit,                                                                                  applicable exclusion amount. You must subtract                                                    For examples of how the credit works, see
•   When the gift tax does and does not ap-                                                       the unified credit from any gift or estate tax that                                             Applying the Unified Credit to Gift Tax and Ap-
    ply,                                                                                          you owe. Any unified credit you use against gift                                                plying the Unified Credit to Estate Tax, later.
                                                                                                  tax in one year reduces the amount of credit that
•   When the estate tax does and does not                                                         you can use against gift or estate taxes in a later
    apply,                                                                                        year.
Page 2                                                                                                                                                                                                       Publication 950 (October 2011)

- 3 -

Page 3 of 5 of Publication 950 10:03 - 21-NOV-2011

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Example 1. You give your niece a cash gift Applying the Unified Credit
of $8,000. It is your only gift to her this year. The
Gift Tax to Gift Tax
gift is not a taxable gift because it is not more
The gift tax applies to transfers by gift of prop- than the $13,000 annual exclusion. After you determine which of your gifts are tax-
erty. You make a gift if you give property (includ- Example 2. You pay the $15,000 college able, you figure the amount of gift tax on the total
ing money), the use of property, or the right to tuition of your friend directly to his college. Be- taxable gifts and apply your unified credit for the
receive income from property without expecting cause the payment qualifies for the educational year.
to receive something of at least equal value in exclusion, the gift is not a taxable gift. Example. In 2011, you give your niece,
return. If you sell something for less than its full Mary, a cash gift of $8,000. It is your only gift to
value or if you make an interest-free or re- Example 3. You give $25,000 to your her this year. You pay the $15,000 college tui-
duced-interest loan, you may be making a gift. 25-year-old daughter. The first $13,000 of your tion of your friend, David. You give your
The general rule is that any gift is a taxable gift is not subject to the gift tax because of the 25-year-old daughter, Lisa, $25,000. You also
gift. However, there are many exceptions to this annual exclusion. The remaining $12,000 is a give your 27-year-old son, Ken, $25,000. You
rule. taxable gift. As explained later under Applying have never given a taxable gift before. You ap-
Generally, the following gifts are not taxable the Unified Credit to Gift Tax, you may not have ply the exceptions to the gift tax and the unified
gifts: to pay the gift tax on the remaining $12,000. credit as follows:
However, you do have to file a gift tax return.
• Gifts, excluding gifts of future interests, 1. Apply the educational exclusion. Payment
that are not more than the annual exclu- of tuition expenses is not subject to the gift
sion for the calendar year, More information. See Form 709 and its in- tax. Therefore, the gift to David is not a
Tuition or medical expenses paid directly structions for more information about taxable taxable gift.
•
gifts.
to an educational or medical institution for 2. Apply the annual exclusion. The first
someone else, $13,000 you give someone is not a taxable
Gifts to your spouse, Gift Splitting gift. Therefore, your $8,000 gift to Mary,
•
the first $13,000 of your gift to Lisa, and
•
Gifts to a political organization for its use, If you or your spouse makes a gift to a third the first $13,000 of your gift to Ken are not
and party, the gift can be considered as made taxable gifts.
one-half by you and one-half by your spouse.
• Gifts to charities. This is known as gift splitting. Both of you must 3. Apply the unified credit. The gift tax on
agree to split the gift. If you do, you each can $24,000 ($12,000 remaining from your gift
Annual exclusion. A separate annual exclu- take the annual exclusion for your part of the gift. to Lisa plus $12,000 remaining from your
sion applies to each person to whom you make a gift to Ken) is $4,680. Subtract the $4,680
gift. The gift tax annual exclusion is subject to Currently, gift splitting allows married from your unified credit of $1,730,800 for
cost-of-living increases. couples to give up to $26,000 to a person with- 2011. The unified credit that you can use
out making a taxable gift. against the gift or estate tax in a later year
Gift Tax Annual Exclusion If you split a gift you made, you must file a gift is $1,726,120.
Year(s) Annual tax return to show that you and your spouse You do not have to pay any gift tax for 2011.
Exclusion agree to use gift splitting. You must file a Form However, you do have to file Form 709.

19982002 –– 20052001 ................ .. $10,000$11,000 annual709 evenexclusion.if half of the split gift is less than the Computing For moreGiftinformation,Tax in theseeInstructionsthe TableforforForm
2006 – 2008 ........ . $12,000
2009 – 2012 ........ . $13,000 Example. Harold and his wife, Helen, agree 709.
to split the gifts that they made during 2011.
Harold gives his nephew, George, $21,000, and Filing a Gift Tax Return
Currently, you generally can give gifts valued up Helen gives her niece, Gina, $18,000. Although
to $13,000 per person, to any number of people, Generally, you must file a gift tax return if any of
each gift is more than the annual exclusion
and none of the gifts will be taxable. the following apply:
($13,000), by gift splitting they can make these
However, gifts of future interests cannot be gifts without making a taxable gift. • You gave gifts to at least one person
excluded under the annual exclusion. A gift of a (other than your spouse) that are more
future interest is a gift that is limited so that its Harold’s gift to George is treated as one-half than the annual exclusion for the year.
use, possession, or enjoyment will begin at ($10,500) from Harold and one-half ($10,500)
some point in the future. from Helen. Helen’s gift to Gina is also treated • You and your spouse are splitting a gift.
If you are married, both you and your spouse as one-half ($9,000) from Helen and one-half • You gave someone (other than your
can separately give gifts valued up to $13,000 to ($9,000) from Harold. In each case, because spouse) a gift of a future interest that he or
the same person without making a taxable gift. If one-half of the split gift is not more than the she cannot actually possess, enjoy, or re-
one of you gives more than the $13,000 exclu- annual exclusion, it is not a taxable gift. How- ceive income from until some time in the
sion, see Gift Splitting, later. ever, each of them must file a gift tax return. future.
Publication 950 (October 2011) Page 3

- 4 -

Page 4 of 5 of Publication 950 10:03 - 21-NOV-2011

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• You gave your spouse an interest in prop- • Debts you owed at the time of death, 2010. The DSUE is only available where an
erty that will be ended by some future election was made on the Form 706 filed by the
• The marital deduction (generally, the value
event. deceased spouse’s estate.
of the property that passes from your es-
tate to your surviving spouse),
You do not have to file a gift tax return to Filing requirement. The following table lists
report gifts to (or for the use of) political organi- • The charitable deduction (generally, the the filing requirements for estates of decedents
zations and gifts made by paying someone’s value of the property that passes from dying after 2001.
tuition or medical expenses. your estate to the United States, any state,
You also do not need to report the following a political subdivision of a state, the Dis- File return if
deductible gifts made to charities: trict of Columbia, or to a qualifying charity estate’s
for exclusively charitable purposes), and value is more
• Your entire interest in property, if no other Year of Death: than:
interest has been transferred for less than • The state death tax deduction (generally
adequate consideration or for other than a any estate, inheritance, legacy, or succes- 2002 and 2003 ......... . 1,000,000
charitable use or sion taxes paid as the result of the dece- 2004 and 2005 ......... . 1,500,000
dent’s death to any state or the District of 2006, 2007, and 2008 .... . 2,000,000
• A qualified conservation contribution that Columbia. 2009 ............... . 3,500,000
is a perpetual restriction on the use of real 2010 and 2011 ......... . 5,000,000
property. More information. For more information on 2012 ............... . 5,120,000
what is included in your gross estate and the
More information. If you think you need to file allowable deductions, see Form 706 and Form
a gift tax return, see Form 709 and its instruc- 706-NA and their instructions. More information. If you think you will have
tions for more information. You can get publica- an estate on which tax must be paid, or if your
tions and forms from the IRS website, www.irs. estate will have to file an estate tax return even if
Applying the Unified Credit
gov. You may want to speak with a qualified tax no tax will be due, see Publication 559, Form
professional to receive help with gift tax ques- to Estate Tax 706, Form 706-NA, and the forms’ instructions
tions. Basically, any unified credit not used to elimi- for more information. You can get publications
and forms from the IRS website at www.irs.gov.
nate gift tax can be used to eliminate or reduce
You (or your estate) may want to speak with a
estate tax. However, to determine the unified
qualified tax professional to receive help with
credit available for use against the estate tax,
estate tax questions.
Estate Tax you must complete Form 706.

Estate tax may apply to your taxable estate at
Filing an Estate Tax Return
your death. Your taxable estate is your gross
estate less allowable deductions. An estate tax return must be filed if the gross Generation-Skipping
estate, plus any adjusted taxable gifts and spe-
Transfer Tax
Gross Estate cific gift tax exemption, is more than the basic
exclusion amount. Beginning in 2010, the basic The GST tax may apply to gifts during your life or
Your gross estate includes the value of all prop- exclusion amount is $5,000,000; it will be in- transfers occurring at your death, called be-
erty you own partially or outright at the time of dexed for inflation starting in 2012. The basic quests, made to skip persons. A skip person is a
death. Your gross estate also includes the fol- exclusion amount is generally equal to the filing person who belongs to a generation that is two
lowing: requirement. or more generations below the generation of the
• Life insurance proceeds payable to your Adjusted taxable gifts is the total of the tax- donor. For instance, your grandchild will gener-
estate or, if you owned the policy, to your able gifts you made after 1976 that are not ally be a skip person to you or your spouse.
heirs; included in your gross estate. The specific gift The GST tax is figured on the amount of the
tax exemption applies only to gifts made after gift or bequest transferred to a skip person, after
• The value of certain annuities payable to September 8, 1976, and before January 1, subtracting any GST exemption allocated to the
your estate or your heirs; and 1977. gift or bequest at the maximum gift and estate
• The value of certain property you trans- The applicable exclusion amount is the total tax rates. Each individual has a GST exemption
ferred within 3 years before your death. amount exempted from gift and/or estate tax. equal to the basic exclusion amount, as indexed
For estates of decedents dying after December for inflation, for the year involved.
31, 2010, the applicable exclusion amount GSTs have three forms: direct skip, taxable
Taxable Estate equals the basic exclusion amount plus any de- distribution, and taxable termination.
The allowable deductions used in determining ceased spousal unused exclusion (DSUE) • A direct skip is a transfer made during
your taxable estate include: amount. The DSUE is the remaining applicable your life or occurring at your death that is:
exclusion amount from the estate of a prede-
• Funeral expenses paid out of your estate, ceased spouse who died after December 31, 1. Subject to the gift or estate tax,
Page 4 Publication 950 (October 2011)

- 5 -

Page 5 of 5 of Publication 950 10:03 - 21-NOV-2011

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2. Of an interest in property, and Also, for the final year of the estate, a beneficiary
3. Made to a skip person. Income Tax on an may receive the following tax benefits from the
estate:
• A taxable distribution is any distribution from Estate • Excess deductions on termination, which
a trust to a skip person which is not a direct are treated as itemized deductions;
skip or a taxable termination. Your estate may have an income tax filing re-
quirement for each year that it has $600 or more • Unused capital loss carryovers;
• A taxable termination is the end of a trust’s of gross income or a beneficiary who is a non- Unused net operating loss carryovers; and
•
interest in property where the property inter- resident alien. The tax is figured on the estate’s
est will be transferred to a skip person. income in a manner similar to that for individu- • Payment of estimated taxes.
als.
More information. If you think you will have a Filing an income tax return. Every estate More information. If you think your estate
gift or bequest on which GST tax must be paid, with an income tax filing requirement must file a may have income tax filing requirements, see
see Form 709, Form 706, Form 706-NA, and the Form 1041. Form 1041 and its instructions, and Publication
forms’ instructions for more information. You 559. You (or your estate) may want to speak
can get publications and forms from the IRS Schedule K-1. Schedule K-1 (Form 1041), with a qualified tax professional to receive help
website, www.irs.gov. You (or your estate) may Beneficiary’s Share of Income, Deductions, with questions about income tax filing require-
want to speak with a qualified tax professional to Credits, etc., reports a beneficiary’s portion of ments of an estate.
receive help with GST questions. income, deductions, and credits from the estate.

Publication 950 (October 2011) Page 5

PDF file checksum: 64795560

(Plugin #1/9.12/13.0)