Publication 950 (Rev. October 2011)

Userid: SD_W3CHB schema tipx Leadpct: 30% Pt. size: 8 ❏ Draft ❏ 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

What’s New

(Rev. October 2011)

Department

Cat. No. 14447X

of the

• The annual gift exclusion remains $13,000

Treasury

in 2011 and 2012. See Annual exclusion,

Internal

Introduction

later, for more information.

Revenue

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

you make a gift to your spouse or to a charity or if

Get forms and other information

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,

the gift tax usually does not apply until the value

Internet IRS.gov

of the gifts you give that person exceeds the

Nov 21, 2011

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

estate tax, credit available to a person will equal the tax on

sion under Gift Tax, below.

the basic exclusion amount plus the tax on any

Even if tax applies to your gifts or your es-

• When the GST tax may apply, and

deceased spousal unused exclusion (DSUE)

tate, it may be eliminated by the unified credit,

• When the income tax may apply to an

amount. The DSUE is only available if an elec-

also known as the applicable credit amount,

estate.

tion was made on the deceased spouse’s Form

discussed below. However, many estates are

706.

subject to federal income tax. See Income Tax

This publication does not contain any informa-

The unified credit on the basic exclusion

on an Estate.

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-

Where to find out more. This publication

other than your spouse, money or property

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

dent aliens. If you need more information, see

Table of Unified Credits

needed unless the estate is worth more than the

the following publication, forms, and instruc-

(Recalculated at Current Rates)

basic exclusion amount for the year of death.

tions.

However, you may wish to file a return if a

Period Recalculated

deceased spouse’s estate has any unused ex-

• Publication 559, Survivors, Executors, and

Unified Credit

clusion amount that the surviving spouse could

Administrators;

use. If an estate tax return must be filed, it is

1977 (Quarters 1 and $6,000

• Form 709, United States Gift (and Genera-

generally due 9 months after the date of death.

tion-Skipping Transfer) Tax Return;

1977 (Quarters 3 and $30,000

No tax payable by the person receiving your

• Form 706, United States Estate (and Gen-

gift or bequest. Generally, the person who

eration-Skipping Transfer) Tax Return;

receives your gift or your bequest will not have to

1978 $34,000

• Form 706-NA, U.S. Estate (and Genera-

pay any federal gift tax or estate tax because of

tion-Skipping Transfer) Tax Return for

it. Also, that person will not have to pay income

1979 $38,000

Nonresidents, not a Citizen of the U.S.;

tax on the value of the gift or inheritance re-

1980 $42,500

and

ceived. However, covered gifts or bequests re-

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.

1982 $62,800

recipient. Consult a qualified tax professional for

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

1984 $96,300

TDD equipment, you can call 1-800-829-4059.

leaving your estate to your heirs does not ordi-

You can also get forms, instructions, and publi-

1985 $121,800

narily affect your federal income tax. You cannot

cations or research answers to tax questions by

deduct the value of gifts you make (other than

1986 $155,800

visiting the IRS website at IRS.gov.

gifts that are deductible charitable contributions)

1987 through 1997 $190,800

or any federal gift resulting from making those

gifts. You also cannot deduct the value of any

1998 $199,500

bequests made or estate tax resulting from mak-

Unified Credit

ing bequests.

1999 $208,300

(Applicable Credit

2000 and 2001 $217,050

What this publication contains. If you are

not sure whether the gift tax, the estate tax, the

2002 through 2010 $330,800

Amount)

income tax, or the GST tax applies to your situa-

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

the unified credit from any gift or estate tax that

Applying the Unified Credit to Gift Tax and Ap-

• When the gift tax does and does not ap-

you owe. Any unified credit you use against gift

plying the Unified Credit to Estate Tax, later.

ply,

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)

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

than the $13,000 annual exclusion.

After you determine which of your gifts are tax-

The gift tax applies to transfers by gift of prop-

able, you figure the amount of gift tax on the total

erty. You make a gift if you give property (includ-

Example 2. You pay the $15,000 college

taxable gifts and apply your unified credit for the

ing money), the use of property, or the right to

tuition of your friend directly to his college. Be-

year.

receive income from property without expecting

cause the payment qualifies for the educational

to receive something of at least equal value in

Example. In 2011, you give your niece,

exclusion, the gift is not a taxable gift.

return. If you sell something for less than its full

Mary, a cash gift of $8,000. It is your only gift to

Example 3. You give $25,000 to your

value or if you make an interest-free or re-

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

gift is not subject to the gift tax because of the

The general rule is that any gift is a taxable

25-year-old daughter, Lisa, $25,000. You also

annual exclusion. The remaining $12,000 is a

gift. However, there are many exceptions to this

give your 27-year-old son, Ken, $25,000. You

taxable gift. As explained later under Applying

rule.

have never given a taxable gift before. You ap-

the Unified Credit to Gift Tax, you may not have

ply the exceptions to the gift tax and the unified

Generally, the following gifts are not taxable

credit as follows:

to pay the gift tax on the remaining $12,000.

gifts:

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

More information. See Form 709 and its in-

sion for the calendar year,

tax. Therefore, the gift to David is not a

structions for more information about taxable

taxable gift.

• Tuition or medical expenses paid directly

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

Gift Splitting

gift. Therefore, your $8,000 gift to Mary,

• Gifts to your spouse,

the first $13,000 of your gift to Lisa, and

If you or your spouse makes a gift to a third

• Gifts to a political organization for its use,

the first $13,000 of your gift to Ken are not

party, the gift can be considered as made

and

taxable gifts.

one-half by you and one-half by your spouse.

• Gifts to charities.

3. Apply the unified credit. The gift tax on

This is known as gift splitting. Both of you must

$24,000 ($12,000 remaining from your gift

agree to split the gift. If you do, you each can

to Lisa plus $12,000 remaining from your

Annual exclusion. A separate annual exclu-

take the annual exclusion for your part of the gift.

gift to Ken) is $4,680. Subtract the $4,680

sion applies to each person to whom you make a

Currently, gift splitting allows married

from your unified credit of $1,730,800 for

gift. The gift tax annual exclusion is subject to

couples to give up to $26,000 to a person with-

2011. The unified credit that you can use

cost-of-living increases.

out making a taxable gift.

against the gift or estate tax in a later year

is $1,726,120.

Gift Tax Annual Exclusion

If you split a gift you made, you must file a gift

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.

1998 – 2001 ......... $10,000

709 even if half of the split gift is less than the

For more information, see the Table for

2002 – 2005 ......... $11,000

annual exclusion.

Computing Gift Tax in the Instructions for Form

2006 – 2008 ......... $12,000

709.

Example. Harold and his wife, Helen, agree

2009 – 2012 ......... $13,000

to split the gifts that they made during 2011.

Filing a Gift Tax Return

Harold gives his nephew, George, $21,000, and

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

• You gave gifts to at least one person

gifts without making a taxable gift.

excluded under the annual exclusion. A gift of a

(other than your spouse) that are more

Harold’s gift to George is treated as one-half

future interest is a gift that is limited so that its

than the annual exclusion for the year.

($10,500) from Harold and one-half ($10,500)

use, possession, or enjoyment will begin at

• You and your spouse are splitting a gift.

from Helen. Helen’s gift to Gina is also treated

some point in the future.

as one-half ($9,000) from Helen and one-half

If you are married, both you and your spouse • You gave someone (other than your

($9,000) from Harold. In each case, because

can separately give gifts valued up to $13,000 to spouse) a gift of a future interest that he or

one-half of the split gift is not more than the

the same person without making a taxable gift. If she cannot actually possess, enjoy, or re-

annual exclusion, it is not a taxable gift. How-

one of you gives more than the $13,000 exclu- 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

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

election was made on the Form 706 filed by the

erty that will be ended by some future

• The marital deduction (generally, the value

deceased spouse’s estate.

event.

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

• The charitable deduction (generally, the

the filing requirements for estates of decedents

report gifts to (or for the use of) political organi-

value of the property that passes from

dying after 2001.

zations and gifts made by paying someone’s

your estate to the United States, any state,

tuition or medical expenses.

File return if

a political subdivision of a state, the Dis-

You also do not need to report the following

estate’s

trict of Columbia, or to a qualifying charity

deductible gifts made to charities:

value is more

for exclusively charitable purposes), and

• Your entire interest in property, if no other

Year of Death: than:

• The state death tax deduction (generally

interest has been transferred for less than

2002 and 2003 .......... 1,000,000

any estate, inheritance, legacy, or succes-

adequate consideration or for other than a

2004 and 2005 .......... 1,500,000

sion taxes paid as the result of the dece-

charitable use or

2006, 2007, and 2008 ..... 2,000,000

dent’s death to any state or the District of

• 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.

2012 ................ 5,120,000

More information. For more information on

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

More information. If you think you will have

a gift tax return, see Form 709 and its instruc-

706-NA and their instructions.

an estate on which tax must be paid, or if your

tions for more information. You can get publica-

estate will have to file an estate tax return even if

tions and forms from the IRS website, www.irs.

Applying the Unified Credit

no tax will be due, see Publication 559, Form

gov. You may want to speak with a qualified tax

to Estate Tax

706, Form 706-NA, and the forms’ instructions

professional to receive help with gift tax ques-

for more information. You can get publications

tions.

Basically, any unified credit not used to elimi-

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

Generation-Skipping

estate less allowable deductions.

An estate tax return must be filed if the gross

estate, plus any adjusted taxable gifts and spe-

Transfer Tax

cific gift tax exemption, is more than the basic

Gross Estate

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

Adjusted taxable gifts is the total of the tax-

donor. For instance, your grandchild will gener-

• Life insurance proceeds payable to your

able gifts you made after 1976 that are not

ally be a skip person to you or your spouse.

estate or, if you owned the policy, to your

included in your gross estate. The specific gift

The GST tax is figured on the amount of the

heirs;

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

tax rates. Each individual has a GST exemption

• The value of certain property you trans-

The applicable exclusion amount is the total

equal to the basic exclusion amount, as indexed

ferred within 3 years before your death.

amount exempted from gift and/or estate tax.

for inflation, for the year involved.

For estates of decedents dying after December

GSTs have three forms: direct skip, taxable

31, 2010, the applicable exclusion amount

Taxable Estate

distribution, and taxable termination.

equals the basic exclusion amount plus any de-

ceased spousal unused exclusion (DSUE)

• A direct skip is a transfer made during

The allowable deductions used in determining

amount. The DSUE is the remaining applicable

your life or occurring at your death that is:

your taxable estate include:

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)

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

may receive the following tax benefits from the

Income Tax on an

3. Made to a skip person.

estate:

Estate

• A taxable distribution is any distribution from

• Excess deductions on termination, which

a trust to a skip person which is not a direct

are treated as itemized deductions;

Your estate may have an income tax filing re-

skip or a taxable termination.

• Unused capital loss carryovers;

quirement for each year that it has $600 or more

• 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. • Payment of estimated taxes.

income in a manner similar to that for individu-

als.

More information. If you think you will have a More information. If you think your estate

Filing an income tax return. Every estate

gift or bequest on which GST tax must be paid, may have income tax filing requirements, see

with an income tax filing requirement must file a

see Form 709, Form 706, Form 706-NA, and the Form 1041 and its instructions, and Publication

Form 1041.

forms’ instructions for more information. You 559. You (or your estate) may want to speak

Schedule K-1. Schedule K-1 (Form 1041),

can get publications and forms from the IRS with a qualified tax professional to receive help

Beneficiary’s Share of Income, Deductions,

website, www.irs.gov. You (or your estate) may with questions about income tax filing require-

Credits, etc., reports a beneficiary’s portion of

want to speak with a qualified tax professional to ments of an estate.

income, deductions, and credits from the estate.

receive help with GST questions.

Publication 950 (October 2011) Page 5