GOOD NEWS ABOUT THE FEDERAL ESTATE AND GIFT TAX IF YOU PLAN ON MAKING SUBSTANTIAL GIFTS BETWEEN NOW AND THE END OF 2025
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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