The federal lifetime gift and estate tax exemption is $11,580,000 per person in 2020—an increase of $180,000 over 2019’s amount.
The federal lifetime gift and estate tax exemption is $11,580,000 per person in 2020—an increase of $180,000 over 2019’s amount. This is the amount a person can give estate/gift tax free to others either during lifetime or at death. For example, if you use $10 million during life to shelter gifts, you will have $1.58 million exemption remaining to be used at death. A married couple can give a combined $23,160,000 without incurring federal transfer tax.
These lofty exemption amounts were created by the Tax Cuts and Jobs Act (TCJA) in 2017 but are scheduled to expire after 2025. Beginning in 2026, the exemption will revert to roughly half of the current amounts. Remember that Congress can change the rules at any time. With a presidential election this year and ballooning federal deficits, it is always possible the estate/gift exemption will be reduced prior to 2026.
Importantly, the IRS has stated that a taxpayer won’t be penalized if they use their current exemption and the exemption is later reduced to an amount less than what they have already used. For example, if a taxpayer makes lifetime gifts of $10 million and dies in 2026 when the exemption is maybe $7 million, they will not owe tax on the $3 million difference. This is good news for taxpayers and a reason why wealthy taxpayers may want to make use of the higher exemptions now.
Please note that some states impose transfer taxes at limits well below the federal exemption. For example, many people are surprised to learn that the estate tax exemption in Massachusetts is only $1 million. Likewise, Rhode Island’s exemption is currently $1,579,922; Vermont’s exemption is $4.25 million; Connecticut’s exemption is $5.1 million and is the only state still with a gift tax; and both Maine and New York have estate tax exemptions in 2020 of $5.8 million. It is important to consider both federal and state rules.
As always you should consult with your financial team before taking advantage of the current estate/gift exemptions.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.
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