The basic exclusion amount for the federal estate and gift tax was increased from $5 million to $10 million by the 2017 Tax Cuts and Jobs Act. That amount will increase with inflation (it’s $11.18 million for 2018) through 2025, but it will go back down to $5 million in 2026, with adjustments for inflation.
So what happens if you make taxable gifts totaling, say, $9 million between 2018 and 2025, when the exclusion amount is over $10 million, then die in 2026, when the exclusion has reverted to $5 million? Will the estate tax apply to the gifts you made between 2018 and 2025 in excess of $5 million? That’s a possibility because the estate and gift taxes are calculated using a unified schedule, and you get only one basic exclusion amount. That means you could get hit with a tax of 40% on $4 million worth of gifts that you thought were not taxable because of the higher exclusion amount. That’s a lot of tax. The IRS has answered the question: no, if you die in 2026 or later, the estate tax will not apply to gifts you made in excess of $5 million between 2018 and 2025. The IRS made this announcement in a news release issued on November 20, IR-2018-229. Via TaxProf Blog.
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