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Here's all the info on gift tax (and estate tax) that you need

http://www.irs.gov/publications/p950/index.html (read the 'Unified Credit' and 'Gift Tax' sections)

Basically, Megan is right. Each person can give each person $11k in each year without any implications. Beyond that, you begin having implications, but it first goes against your lifetime 'unified credit' of $345,800

Let's say they gave you $50K. By Megan's example above, $44K is completely free and clear. The other $6K they have to report as beyond the exclusion. Let's say they're in the 28% tax bracket, so they'd pay $1680 in tax. All they do is subtract is amount from their lifetime unified credit of $345,800, leaving them with $344,120 remaining in their lifetimes. Only if they get this number down to zero in their life do they need to actually start paying taxes on gifts.


You started off fine, but went off course. If this is the first gift the parents gave which exceeded the annual gift limit, the excess $6000 would be taxed at 18%, not 28%. You don't use the income tax bracket, but the gift tax bracket which is significantly different. So, in this case the parents would use $1,080 of their lifetime unified credit (presumably $540 each). If the parents had already given other taxable gifts in their lifetimes, the gift tax rate would be higher.

Ira
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