applying unified credit

[nguyen99]

What is the name of your state (only U.S. law)? Ca

This is a section from IRS PUB 950, I am confused that when applying the unified credit, why deduct against $345800 but not $1000000? What happen if over $345800 in 2009? is it going to be taxable even though still < 1milion exclusion?

Thanks

Applying the Unified Credit to Gift Tax

After you determine which of your gifts are taxable, you figure the amount of gift tax on the total taxable gifts and apply your unified credit for the year.
Example. In 2009, you give your niece, Mary, a cash gift of $8,000. It is your only gift to her this year. You pay the $15,000 college tuition of your friend, David. You give your 25-year-old daughter, Lisa, $25,000. You also give your 27-year-old son, Ken, $25,000. Before 2009, you had never given a taxable gift. You apply the exceptions to the gift tax and the unified credit as follows:

3. Apply the unified credit. The gift tax on $24,000 ($12,000 remaining from your gift to Lisa plus $12,000 remaining from your gift to Ken) is $4,680. For more information, see the Table for Computing Gift Tax in the Instructions for Form 709. You subtract the $4,680 from your unified credit of $345,800 for 2009. The unified credit that you can use against the gift tax in a later year is $341,120.

 

[tecate]

The gift tax on the first $1,000,000 of taxable gifts is $345,800. The law refers to the credit against the tax, not the amount of the gift.

 

[anteater]

The $1 million refers to the lifetime exclusion amount available for the reportable gifts themselves. In the example you cited, $12,000 for each of the gifts to Lisa and Ken, or $24,000 in total.

The $345,800 refers to the amount of tax that would be due on that $1 million if it the tax had to be paid. Again, in the example, the tax on that $24,000 in reportable gifts would be $4,680.

It's a matter of what most people relate to best - the $1 million exclusion rather than the tax that would be due on that $1 million. Same as most people relate better to thinking of the first $3.5 million of estate value being excluded from the estate tax. If you start talking about the amount of the tax credit for the amount of tax due on that $3.5 million, most people get a quizzical look.