[AMERICANDREAM]

From Becker:
“The IRC provides for a ‘unified estate and gift tax credit’ of $2,125,800 for year 2016. This tax credit is equal to the tax, before credits, on a $5,450,000 tentative tax base at death.
The IRC calls this $5,450,000 amount the ‘applicable exclusion amount’. However, this amount is not subtracted in calculating the tentative tax base at death; rather, the estate computes the estate tax on the tentative tax base at death and then reduces that tax by the $2,125,800 unified estate and gift tax credit. The net result is generally an estate tax due equal to: 40% x [tentative tax base at death minus $5,450,000]”.

I just don’t understand what this whole passage is saying. If someone could explain it for a dummie like me, it’d be extremely appreciated.
I know that each gift is excludable up to $14,000. But is that amount related to what the above is mentioning?

[ahsq]

i have the same question!

[ForgottenOne]

“I know that each gift is excludable up to $14,000. But is that amount related to what the above is mentioning?”

~14k is yearly exclusion amount. The 2Mil or the 5Mil you mentioned above is the lifetime (death) amount. Donor does not even have to mention it if he gives a gift to an individual 14k in that year. But it's required by law to fill out a form if the gift is more than that (not a lot of people follow this rule unless the gift is like hundred of thousands of dollars). The extra gift amount will go against the LIFE TIME exclusion amount (think of it like keeping track of depreciation), no gift tax until the lifetime exclusion go down to ZERO. and YES, there is a LOOPHOLE. IF a dad has 5 sons and he wants to give the 5th son 70k without filing out any form. He would have to give all his sons 14k that year. Son 1 to 4 use that 14k to give to son 5. Of course, he just has to trust son 1 to 4 not keeping the money for themselves. THIS IS WHAT I'VE UNDERSTOOD SO FAR RELATING TO THIS SUBJECT, FEEL FREE TO CORRECT ME IF I AM WRONG.

In reality, 97% of people are not that wealthy enough to be liable for gift tax. President Trump was thinking about himself when he talked about no taxes upon death. So many people were cheering, LOL, he was such a troll.

[Author]

Replies