Background

• Inheritance and gift taxes have traditionally had exclusion limits and tax rates that have changed throughout the years. The estate tax only applies to income over a set amount, such as $1 million. Any amount above the set limit would be taxed at a rate set by the IRS, but the amount up to the limit would be excluded, or not taxed. The same is true for gift taxes; there is an exclusion limit determined annually, and anything above that set amount is taxed as normal income.
  
  

2010 Exclusion Limit

• As of August 2010, Congress has allowed the inheritance and gift tax law to lapse. While there will be no inheritance or gift tax, this money may be subject to capital gains taxes, and will impact people with much smaller inheritances than in the past. Congress may retroactively set the same standards as 2009--$3.5 million exclusion and 55 percent tax rate on estates and $13,000 exclusion for gifts.
  
  

Deductions

• Gifts are not tax deductible for the person giving the gift and will not reduce his taxable income.
  
  

Forms

• Form 709 is used to give an accounting of estate and gift money.