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Potential Changes to the Gift Tax

A number of tax provisions are scheduled to expire at the end of 2012, including the highly favorable treatment of federal estate and gift taxes. If you are considering a gift that could be subject to the gift tax, this may be a good time to examine your options.

Limits and Exclusions

In 2012, you can give up to $13,000 ($26,000 with your spouse) in cash or income-producing assets such as stocks and bonds to as many people as you wish without any gift tax liability. Excluded from the tax are gifts of any amount to your spouse (as long as he or she is a U.S. citizen), gifts to a qualified charitable or political organization, and payments of tuition or medical expenses that are made directly to an educational institution or medical provider on behalf of someone else.

Lifetime Exemption

A total lifetime exemption of $5.12 million applies to the gift tax and estate tax combined in 2012. This means that any amount you apply to exempt a gift from the tax during your lifetime would reduce the exemption available for your estate.
Relatively few gifts or estates exceed the current exemption amount. However, unless lawmakers act, the exemption will revert to $1 million in 2013, which could subject more modest gifts and estates to the tax.

If you have not previously used part of your exemption, you may have an opportunity to give up to $5.12 million by December 31, 2012, without incurring any federal gift tax liability. However, if you use $1 million or more of your exemption for a gift in 2012 and the law reverts as scheduled, you may have no exemption available for future gifts or for your estate.
Because of the uncertain future of the gift tax, be sure to consult with a tax professional before taking any specific action.
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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