North Carolina Repeals the NC Gift Tax
July 17, 2008, Governor Mike Easley signed into law House Bill 2436. Among the 200 plus pages of budget items was a major victory for estate planners and their clients; the total repeal of the North Carolina gift tax. The repeal will take effect on January 1, 2009 and will apply to all gifts made on that date and thereafter.
Prior to the recent repeal, North Carolina was one of only a handful of states that still had a gift tax. Under the old system, and for the remainder of 2008, North Carolina imposes a gift tax on any gift above the federal annual exclusion ($12,000 in 2008) except in the case of gifts to certain family members of the donor (e.g., children, grandchildren), where an additional $100,000 lifetime exclusion for N.C. gift tax purposes is allowed. Thus, a donor could only make gifts of up to $100,000.00 plus any applicable annual exclusion to his or her descendants during the course of the donor’s entire life without incurring the North Carolina gift tax.
Starting in 2009, the Federal gift tax laws will now exclusively determine whether North Carolina taxpayers are subject to any gift tax. The federal lifetime gift tax exclusion is currently one million dollars ($1,000,000.00). Thus, a North Carolina taxpayer will soon be able to make up to a million dollars of gifts plus applicable annual exclusion gifts during one’s lifetime without incurring gift tax at the Federal or state level.
In short, the repeal makes the tax consequences of estate and gift planning significantly less expensive for North Carolinians. Further, with a January 1, 2009 effective date, we suggest that clients not make any gifts in excess of any currently available annual or lifetime exclusions for the remainder of 2008.
Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of avoiding tax related penalties or promoting, marketing or recommending to another party any tax related matter addressed herein.
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