Other Tax Issues of Interest

Unified Credit

A credit is an amount that eliminates or reduces tax. You are automatically given a unified credit of $220,550 to use over your lifetime. You subtract the unified credit from any gift tax that you owe. If you do not use the entire $220,550 to eliminate the gift tax, your estate can use the rest to eliminate or reduce estate tax.

Credit's Effect. The credit of $220,550 eliminates taxes on a total of $675,000 of taxable gifts and taxable estate.

You use the credit to eliminate gift tax on up to $675,000 of taxable gifts you give during your lifetime. If you give less than $675,000 of taxable gifts during your lifetime, any remaining credit is used to eliminate or reduce tax that may be owed on your taxable estate.

For examples of how the credit works, see Applying the Unified Credit to Gift Tax
Applying the Unified Credit to Estate Tax.

The following table lists the unified credit for years after 1999.

Unified Year Credit: 2000 and 2001  2002 and 2003   2004  2005  After 2005

Unified Credit: 220,550 229,800 287,300 326,300 345,800

Exclusion Amount: 675,000 700,000 850,000 950,000 1,000,000

Important References

Publication 950          Estate and Gift Taxes
Publication 553          Highlights of 2001 Tax Changes