I am selling my house $120000.00 below FMV how do I calculate the gift tax I would have to pay? ANy Help?

You'll have to file a Gift Tax return, Form 709 http://www.irs.gov/pub/irs-pdf/f709.pdf . You can dip into your lifetime exclusion and avoid any tax, however that will permanently reduce your Estate Tax exclusion amount. Currently the Estate Tax is scheduled to expire in 2010 but will be reinstated in 2011 at last year's exclusion level ($1 million). The future impact on your estate will be impossible to predict since Congress can change the laws at any time. You may want to consult with an estate planner before you go through with this deal to make sure you don't sell yourself or your heirs short. The taxable gift would be $110,000 less the $12,000 annual exclusion for a net taxable gift of $98,000. The tax on that if you opt to not use your lifetime exclusion would be $23,240.

bostonianinmo's answer implies that using the Unified Credit is optional. I don't see anywhere on From 709 where you are given the option to NOT use the credit. Maybe he will come back and explain that to me.