914 / What is the gift tax unified credit?

It is a dollar amount ($5,389,800 in 2024, $5,113,800 in 2023, $4,769,800 in 2022, $4,625,800 in 2021, $4,577,800 in 2020, $4,505,800 in 2019, and $4,419,800 in 2018)¹ that is credited against the gift tax computed as shown in Q 892.² In 2010, the credit exempted $1,000,000 of taxable gifts from the gift tax (the dollar amount exempted is referred to as the “gift tax applicable exclusion amount”). For 2011, the amount increased to $5,000,000, and was adjusted for inflation to $5,490,000 in 2017, and the 2017 Tax Act doubled the amount to $11,800,000 in 2018, $11,400,000 in 2019, $11,580,000 in 2020, $11,700,000 in 2021, $12,060,000 in 2022, $12,920,000 in 2023 and $13,610,000 in 2024).³ Any gifts made over the gift tax applicable exclusion amount are taxed at a 40 percent rate (in 2013 and thereafter). (For application of the unified credit to the federal estate tax, see Q 861.) The credit is referred to as “unified” because the current credit applies to the gift tax (section 2505), the GST tax (section 2641) or the estate tax (section 2010).

The amount of unified credit allowed against the tax on gifts made in any calendar year cannot exceed the dollar amount of credit applicable to the period in which the gifts were made, reduced by the sum of the amounts of unified credit allowed the donor against gifts made in all prior calendar periods, and reduced further by the rule explained in the next paragraph (but in no event can the allowable credit exceed the amount of the tax). The unused exemption of a deceased spouse may be transferred to the surviving spouse to increase the gift or estate applicable exclusion amount for the surviving spouse.⁴

The unified credit was enacted by the Tax Reform Act of 1976. Under prior law, separate exemptions were provided for estate and gift taxes. The gift tax specific exemption was $30,000 for each donor (or $60,000 if the donor’s spouse joined in making the gift). The exemption was not applied automatically, as in the case of the unified credit, but had to be elected by the donor, and once used was gone. The law provides that as to gifts made after September 8, 1976, and before January 1, 1977, if the donor elected to apply any of his lifetime exemption to such gifts, his unified credit is reduced by an amount equal to 20 percent of the amount allowed as a specific exemption.⁵ (The unified credit is not reduced by any amount allowed as a specific exemption for gifts made prior to September 9, 1976.)

Under 2010 TRA, a donor can make gifts, without incurring a gift tax liability, up to the difference between the current year’s applicable exclusion amount and the prior taxable gifts.