Annual Gift Tax Exclusion vs Lifetime Gift Cap

[blohm515]

Greetings,

The annual gift tax exclusion is $14,000. My Client gave a gift of $80,000 to his father. Since it is over the annual exclusion, a gift tax return should be filed. Will my Client have to pay the 40% gift tax on the $66,000 ($80,000-$14,000)? He is not even close to the lifetime max of $5.3 million. Can he credit the remaining $66,000 against the life time max and pay no tax?


What's difference between the annual max and lifetime cap? If there is no tax because of the lifetime cap, what's time point of the annual max exclusion?

[Roland Slugg]

Will my Client have to pay the 40% gift tax on the $66,000 ($80,000-$14,000)?

No.

Can he credit the remaining $66,000 against the life time max and pay no tax?

Yes.

If there is no tax because of the lifetime cap, what's time point of the annual max exclusion?

The first $14K per donee per year is fully excludable. The excess eats into the lifetime cap, which also becomes the estate tax cap. That's why it is referred to as a "unified" cap/exemption/exclusion ... whatever.