Ultra-wealthy families who take advantage of the historically high estate and gift tax exclusions included in the Tax Cuts and Jobs Act (TCJA) received welcomed news from the IRS in 2019. Taxpayers who rely on the very generous but temporary provisions of the new law to make gifts during tax years 2018 through 2025 will not lose the tax benefits of those gifts when the exemption reverts to its pre-TCJA level in 2026.
The TCJA doubled the amount that individual taxpayers may transfer to heirs during life or at death without incurring federal estate or gift taxes from $5.48 million in 2017 to $11.2 million in 2018. For 2023, the exemption is $12,920,000 for individuals and $25,840,000 for married couples filing joint returns. However, because the law also calls for these higher thresholds to sunset in 2026, taxpayers were left to wonder if their estates would be subject to IRS clawbacks of gifts made before 2026 should they die after 2025.
In issuing its final regulations, the IRS clarifies that the higher exemption amount is a “use it or lose it” benefit that applies only to decedents who make actual gifts between 2018 and 2025. For example, a gift of $9 million a taxpayer made in 2018 (when the exemption was $11.2 million), would continue to be exempt from tax if the taxpayers passes away in 2026 or later, when the higher exemption amount no longer applies. In other words, you may make a gift of as much as $11.58 million in 2020 and avoid exposure to lifetime gift tax or having that amount included in your taxable estate upon death, whenever that occurs. By the same token, taxpayers who make large gifts today will continue to receive the tax benefits of the higher exclusion amount even if the political winds blow and a new administration changes existing tax laws.
About the Author: Eric P. Zeitlin is managing director of Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email email@example.com.
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Eric P. Zeitlin is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
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Posted on April 13, 2023