DEFINITION of 'Annual Exclusion'

The amount of money that may be transferred by gift from one person to another each year without incurring a gift tax or affecting the unified credit. This amount can be transferred in the form of cash or other assets.

BREAKING DOWN 'Annual Exclusion'

The annual exclusion has no limits on the number of persons that can receive this amount each year. For example the annual exclusion for 2011 was $13,000. This means that a wealthy individual might, for example, gift $13,000 to ten different people in one year without incurring a gift tax. Also, married couples can combine each partner's $13,000 annual exclusion amount to gift up to $26,000 per individual, or up to $52,000 per couple, every year. This gifting strategy is often used to reduce the size of one's taxable estate.

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