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35% Maximum Gift Tax Rate in 2010 Only

12/17/2010 - The income, estate, & gift taxes have been modified for 2010, 2011 & 2012 by the Tax Relief Act of 2010.

Now that we are approaching the end of 2010 and Congress has not acted to “repeal the repeal” of the estate or increase the 2010 gift tax rate, the opportunity to lock in the 35% maximum gift tax rate applicable only in 2010 should be considered as a viable strategy. The maximum rate on gifts in 2009 was 45% and it is currently scheduled to increase to 55% in 2011. Like the apparent 2010 one-year hiatus in the estate tax, the 2010 35% maximum rate on gifts is a related result of Congressional mismanagement. Earlier this year there was a very real fear that Congress would reinstate the estate and generation skipping taxes and increase the maximum gift tax rate for 2010. As much of 2010 has now passed, it seems unlikely that a lame duck Congress will be able to act on this matter before the end of the year, and with change of control in the House of Representatives the likelihood that a retroactive change will be made in 2011 seems even less likely. Although there is legal authority to support constitutionality of a retroactive change, doing it in a subsequent year stretches that authority considerably.

Although 2010 gifts at the 35% maximum rate are most attractive to persons willing and able to make very large gifts at levels above the $1,000,000 gift tax exemption, donors of smaller gifts can also benefit. The 35% maximum rate for 2010 applies to cumulative gifts over $500,000. For 2011 and beyond the brackets for cumulative taxable gifts above $500,000 are as follows:

Between But Not Over Marginal Rate $500,000 $750,000 37% $750,000 $1,000,000 39% $1,000,000 $1,250,000 41% $1,250,000 $1,500,000 43% $1,500,000 $2,000,000 45% $2,000,000 $2,500,000 49% $2,500,000 $3,000,000 53% Over $3,000,000 55%

This brief overview of some important considerations associated with federal gift taxes is by no means comprehensive. Always seek the advice of a competent professional when making important federal gift tax.

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