The Treasury Department and IRS recently issued final regulations confirming that taxpayers taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 won’t be adversely affected after 2025, when the exclusion amount is scheduled to decrease to pre-2018 levels.
Think Advisor’s article, “IRS Issues Final Regs on Gift and Estate Tax Exclusion,” notes that the final regs, Treasury Decision 9884, implement changes made by the Tax Cuts and Jobs Act enacted in December 2017.
The final regulations in large part adopt the proposed regulations published last November. However, the regs also include clarifying technical language addressing concerns raised in several public comments and four examples which, among other things, show the impact of inflation adjustments.
Therefore, those planning to make large gifts between 2018 and 2025 can do so without worry.
The IRS says that gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is calculated after applying a credit (formerly known as the unified credit), based on an applicable exclusion amount.
“The applicable exclusion amount is the sum of the basic exclusion amount (BEA) established in the statute, and other elements, if applicable, described in the final regulations.
“The credit is first used during [one’s] life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax,” the IRS states.
The tax law temporarily bumped up the basic exclusion amount from $5 million to $10 million for tax years 2018 through 2025—with both dollar amounts adjusted for inflation.
For 2019, the inflation-adjusted BEA is $11.4 million. However, in 2026, the BEA will go back to the 2017 level of $5 million, as adjusted for inflation.
To answer questions about estate tax applying to gifts exempt from gift tax by the increased BEA, the final regs “provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death,” the IRS states.
Reference: Think Advisor (November 22, 2019) “IRS Issues Final Regs on Gift and Estate Tax Exclusion”