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Gift Tax Question

Using year 2008 as an example; are my computations correct ? Lets assume a gift of $ 1,112,000 by a single donor to a single donee. There would be a $ 12,000 annual exclusion, a full use of the $

1,000,000 annual exemption (which would be deducted from the lifetime estate tax exemption) and a remaining taxable gift of $ 100,000 which would be fully taxed at an effective rate of 23.8 %.

Additionally in 2009 the donor gifts $ 50,000 above the annual exclusion, the effective rate on the $ 50,000 would be 21.2 %. Are my numbers correct ?

Thank you Ron

Reply to
Ron
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I'm not where I can easily look stuff up but I would be surprised of the marginal rate goes down. Keep in mind, also, that the first $100,000 (from 2008) would be taxed starting at the marginal rate for a $1,100,000 transfer.

Reply to
Bill Brown

The marginal rate went down because the gift was less in the second year. And you're right, the lifetime exclusion is deducted after the tax is imposed, meaning that the excusion comes from the lower brackets rather than the higher ones.

In OP's case the marginal rate for gifts over $500,000 is 35%, which is what should be imposed for 2008. For 2009 the tax rate for a gift of $50,000 is $8,200 plus 24% of the excess over $40,000.

Reply to
Stuart A. Bronstein

Nope.

The current year's gift tax bracket is determined cumulatively. The OP would still be in the 35% bracket in 2009.

Reply to
Bill Brown

Whoops! You're right. I'd forgotten all about that. Thanks for the refresher.

Reply to
Stuart A. Bronstein

You're welcome and thanks in advance for returning the favor.

Reply to
Bill Brown

Thanks to everyone for responding to my original post. I have a follow up question: It was mentioned that the gift tax is cumulative. Does that mean once a person has gifted his lifetime exemption, any further gifts (even $ 1000) greater than the annual exclusion, will be taxed at the highest marginal rate (for example 55 % in 2011) ? Thank you very much.

Reply to
Ron

Yes, subject to Congress passing complicating changes over the next few months (or years or whenever they get a round tuit).

Reply to
Bill Brown

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