Very basically, according to the IRS…Making large gifts now won’t cause any harm to estates after 2025… “On Nov. 20, 2018, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.”
From the IRS website (https://www.irs.gov/newsroom/estate-and-gift-tax-faqs)…
Here is some Q&A information from the IRS site:
“Q. How did the tax reform law change gift and estate taxes?
A. The tax reform law doubled the BEA (basic exclusion amount) for tax-years 2018 through 2025. Because the BEA is adjusted annually for inflation, the 2018 BEA is $11.18 million. Under the tax reform law, the increase is only temporary. Thus, in 2026, the BEA is due to revert to its pre-2018 level of $5 million, as adjusted for inflation.
Q. How did the IRS clarify the law?
A. To address concerns expressed by a number of stakeholders, the proposed regulations clarify that people taking advantage of the increased BEA by making gifts during the period 2018 to 2025 will not be harmed after 2025 when this amount is scheduled to drop. The regulations provide a special rule that effectively allows the estate to compute its estate tax credit using the greater of the BEA applicable to gifts made during life, or the BEA applicable on the date of death. As a result, people planning to make large gifts between 2018 and 2025 can do so without being concerned that they will lose the tax benefit of the higher exclusion level once it decreases.”
Q. How does the special rule work?
A. Here’s an example. Before 2018, A had never made a taxable gift. In 2018 when the BEA is $11.18 million, A makes a taxable gift of $9 million. A uses $9 million of the available BEA to reduce the gift tax to zero. A dies in 2026. Even if the BEA is lower that year, A’s estate can still base its estate tax calculation on the higher $9 million of BEA that was used in 2018.
Note: For more information about this and other TCJA (Tax cuts and Jobs Act) provisions, visit IRS.gov/taxreform.
“The IRS is working on implementing the Tax Cuts and Jobs Act (TCJA). This major tax legislation will affect individuals, businesses, tax exempt and government entities.”
NOTE FROM IRS: The above FAQs from the IRS are for informational purposes and cannot be relied upon.
Your financial planner will advise on individual cases.
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