Doron F. Eghbali Business Law Blog on Lawyers.com

BASICS of Annual Gift Tax ExCLUSION

Thursday, February 3, 2011 by Doron F. Eghbali

Annual gift tax exclusion as high as $13,000 for 2011 could be an intelligent prudent approach to move substantial assets and potential appreciation from taxpayer's assets. Let us explore the basics of such annual gift tax exclusion, in some detail.

WHAT IS ANNUAL GIFT TAX EXCLUSION?

This tax provision is probably among the most useful tax provisions in the entire tax code. Every taxpayer could take advantage of the exclusion every year. A taxpayer may make as many gifts as the taxpayer desires so long as such gift does not exceed $13,000 to any one person in any given year. Note, the $13,000 threshold exclusion could be higher or lower in future years.

WHAT ARE SOME MECHANICS OF GIFT TAX EXCLUSION?

Married couples could gift as much as $26,000 to any one person.
The annual exclusion does not count towards $5 million exemption and there is no deduction for the gift.

WHAT ARE SOME CHARACTERISTICS OF GIFT TAX EXCLUSION?

The recipient of the gift could be anyone, relative or not.
The gift could be cash or non-cash item such as stock.
The gift could be something difficult or impossible to divide such as a painting or piece of property.
The gift should be completed, i.e. the donor should not maintain any control over the gift, among other requirements.

WHAT ARE SOME CAVEATS OF GIFT TAX EXCLUSIONS?

CARRY-OVER COST BASIS: To determine what gift to give, it is important to keep in mind the donor's cost-basis in the property carries over to the donee. For example, if Dad gifts 10 shares of Google stock to Daughter and each share now is worth $700, but Dad bought each share for $400, then Daughter would have cost-basis of $400 for each gifted stock not $700.
BUMPED-UP COST BASIS: However, if Dad passes away and Daughter receives the stock as part of inheritance, then Daughter would receive the 10 stocks with their fair market value as of Dad's death.

_______________

DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

Posted at 18:00 PM

Topic: Business Law