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Tuesday, December 23, 2008

Inflation updates for 2009

Every year the Internal Revenue Service publishes new rates and tables for a variety of tax exemptions. Here are the important ones that relate to Gift and Estate Taxes:

Starting on January 1, 2009...

1) The Annual Gift Tax Exclusion will be $13,000. The old limit was $12,000. This means a person can give any other person at least $13,000 before it is subject to the federal gift tax. I won't go into the details about how and when it will qualify - just realize that as long as it is an outright gift, it will usually qualify. Also, a husband and wife may now split a $26,000 gift for tax purposes before there is a gift tax.

2) The Annual Gift Tax Exclusion for Gifts to Non-Citizen Spouses will be $133,000. The old limit was $128,000. This is the maximum amount a person may transfer to a non-citizen spouse before the gift is subject to a gift tax. In order for US law to apply, we will usually be talking about a gift being made to a permanent resident alien spouse. One place where this gets triggered unexpectedly by many is retitling of real estate - so be careful with changing ownership before giving this some thought.

3) The Federal Estate Tax Exemption will be $3,500,000. We've talked about this before, so it should not be a surprise to anyone that the estate tax exemption amount is going up from $2,000,000 up to $3,500,000. The real question will be what happens in 2010 under a Democratic Congress and President. All rumors that I am hearing at this point lead me to believe that the $3,500,000 will stay, but be indexed for inflation.

Source: IRS Rev.Proc. 2008-66, 2008-45 IRB1
I.R.C. Section 2010