What tax credit offsets estate and gift taxes and, in 2014, equals $2,081,800?

• A. Lifetime exemption
• B. Portable
• C. Unified credit
• D. Unlimited marital deduction

Answer: (C)

The key idea is that there is a single tax credit that offsets both estate and gift taxes, known as the unified credit. This credit reduces the tax liability dollar-for-dollar up to a certain exemption amount. In 2014, that credit covered about $2,081,800, which corresponds to the lifetime exemption amount you can use before any estate or gift tax applies. The point is that this credit, not a deduction, provides the tax relief up to that threshold.

Portable is a provision that allows a surviving spouse to use any unused portion of a deceased spouse’s exemption, but it is not the credit itself. The unlimited marital deduction is a deduction, not a credit, and the lifetime exemption is the amount sheltered by the credit, not the credit’s name.