Unified Credit for Gift and Estate Tax

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Unified Credit (Applicable Exclusion Amount) A credit is an amount that eliminates or reduces tax. A unified credit applies to both the gift tax and the estate tax. You must subtract the unified credit from any gift tax that you owe. Any unified credit you use against your gift tax in one year reduces the amount of credit that you can use against your gift tax in a later year. The total amount used during life against your gift tax reduces the credit available to use against your estate tax.

Under prior law, the same unified credit amount applied to both the gift tax and the estate tax. Under current law, however, the unified credit against taxable gifts will remain at $345,800 (exempting $1 million from tax) indefinitely, while the unified credit against estate tax increases until 2009. The following table shows the unified credit and applicable exclusion amount for the calendar years in which a gift is made or a decedent dies after 2003.


For Gift Tax Purposes:

Year                     Unified Credit   Applicable Exclusion Amount  
2004 and 2005            345,800          1,000,000  
2006, 2007, and 2008     345,800          1,000,000 
2009 and thereafter      345,800          1,000,000  

For Estate Tax Purposes:

Year                     Unified Credit   Applicable Exclusion Amount
2004 and 2005            555,800          1,500,000  
2006, 2007, and 2008     780,800          2,000,000  
2009                     1,455,800        3,500,000

Source: IRS Publication 950

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