IRS Says Those Who Take Advantage of New Estate and Gift Tax Rates Won't Need to Worry Come 2026

Chris Gaetano
Published Date:
Nov 25, 2019
The U.S. Treasury Department has released guidance saying that those who take advantage of the estate and gift tax's new basic exclusion amount (due to the Tax Cuts and Jobs Act) won't have to worry about when the rate reverts back to 2017 levels in the beginning of 2026. 

The Tax Cuts and Jobs Act provides that for decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026, the basic exclusion amount is increased by $5 million to $10 million, as adjusted for inflation.  Thus, in January 2026, absent any other legislation, that rate will revert back to $5 million. 

Stakeholders, in comments to the IRS, expressed concern that a decrease in the basic exclusion amount has the potential to cause the imposition of estate tax on gifts that were sheltered from gift tax by the higher threshold in effect when the gifts were made. Under current law, this can occur only after Dec. 31, 2025, when the rate reverts to $5 million, as adjusted for inflation, as a result of the sunset of the increased amount.

In response to these concerns, the guidance contains what's called the "special rule." In the case of a difference between the basic exclusion amount applicable to gifts and that applicable at the donor’s date of death, the rule provides that the portion of the credit against the net tentative estate tax that is attributable to the basic exclusion rate is based upon the greater of those two credit amounts.

Essentially, the guidance says don't worry about being taxed again once the old rates reassert themselves. 

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