Federal gift tax of $10,000 is not limited to family


Dollars & Sense


As to the gift tax for the unmarried: Are gifts limited to immediate family, or does it include others, such as nephews and nieces? I would like to have it made clear, please.

Here's the general rule: If you're single, you can give up to $10,000 a year to someone without triggering federal gift tax consequences.

You can give to as many people as you like, and not just to immediate family members, either. "You can gift to anybody," said Mark A. Luscombe, a lawyer, accountant and principal tax analyst at CCH Inc. of Riverwoods, Ill., a publisher of tax information.

For instance, you could give up to $10,000 this year to your son, up to $10,000 to your daughter, up to $10,000 to your niece, up to $10,000 to your nephew and up to $10,000 to the guy down the street - all without triggering federal gift tax issues.

What if you exceed the $10,000 annual limit per recipient? You still may not have to pay a federal gift tax. But you will have to file a federal gift tax return.

In addition, you will start nibbling away at another limit. This one applies to the overall amount of assets you may transfer to your heirs without triggering the federal estate tax. (This overall amount is $675,000 for this year. The amount is scheduled to increase in stages until it reaches $1 million in 2006 and later years.)

This is why a well-to-do person with a lot of cash and other assets may give away up to $10,000 each year to relatives and others.

Each such gift whittles away at the overall size of his or her estate. Eventually, this strategy, combined with some other carefully planned steps, can allow him or her, upon death, to pass an entire estate to heirs without the federal estate tax taking a bite.

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