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. The purpose of this publication is to give you a general understanding 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.

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 you make a gift to your spouse or if your estate goes to your spouse at your death. If you make a gift to someone else, the gift tax does not apply to the first $10,000 you give that person each year.

Even if tax applies to your gifts or your estate, it may be eliminated by the unified credit, discussed later.

No return needed. Generally, you do not need to file a gift tax return unless you give someone, other than your spouse, money or property worth more than $10,000 during a year. An estate tax return generally will not be needed unless the estate is worth more than the applicable exclusion amount for the year of death. This amount is shown in the table under Unified Credit.

No tax on the person receiving your gift or estate. The person who receives your gift or your estate will not have to pay any gift tax or estate tax because of it. Also, that person will not have to pay income tax on the value of the gift or inheritance received.

No income tax deduction. Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).

What this publication contains. If you are not sure whether the gift tax or the estate tax applies to your situation, the rest of this publication may help you. It explains in general terms:

• When tax is not owed because of the unified credit,
• When the gift tax does and does not apply,
• When the estate tax does and does not apply, and
• When to file a return for the gift tax or the estate tax.

This publication does not contain any information about state or local taxes. That information should be available from your local taxing authority.

Where to find out more. This publication does not contain all the rules and exceptions for federal estate and gift taxes. It does not contain the rules that apply to nonresident aliens. If you need more information, see the following forms and their instructions:

• Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return,
• Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and
• Form 709-A, United States Short Form Gift Tax Return.

To order these forms, call 1-800-TAX-FORM (1-800-829-3676). If you have access to TTY/TDD equipment, you can call 1-800-829-4059. To get these forms with your personal computer or by fax, see the first page of this publication.

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