Additional Analysis To Be Made When Gifting in 2011 and 2012


Under the Tax Relief Act of 2010, an individual has a lifetime exemption equal to $5 million for 2011 and 2012. This exemption can be used to not pay estate and gift taxes or both. In 2013, this exemption is scheduled to go back to $1 million unless there is further legislation enacted to have the exemption be different. There is a legitimate concern that it will be important to utilize this exemption over the next 2 years to avoid the potential risk that it may go down to a lesser amount in the future. There needs to be careful analysis as to whether one should gift.

A key concern is the income tax basis that the recipient will receive. If one inherits an asset, the basis is the date of death value. Alternatively, if one receives a gift, the basis is the lesser of the grantor's basis and the fair market value of the property at the time of gift. This can have a great impact on a subsequent sale of the asset and/or depreciation deductions available for a depreciable asset.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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