TAX HIGHLIGHT
Estate and Gift Tax Exemption : A Sunset You Don ’ t Want to Miss
With the current unified federal gift and estate tax exemption ( exemption ) expected to sunset in 2026 , now is an opportune time to ensure you maximize this tax savings opportunity . Currently , the exemption has been doubled and inflation has boosted it even further . For individuals who make gifts in 2024 or die in 2024 , the exemption is $ 13.61 million ( effectively $ 27.22 million for married couples ), unless any portion of it was utilized in a previously filed gift tax return .
Unfortunately , this exemption is scheduled to revert to its levels prior to the Tax Cuts and Jobs Act ( TCJA ) after 2025 , unless Congress extends it . While the future of this exemption remains uncertain , taxpayers should consider transferring wealth to the next generation now — while the tax laws are favorable and asset values may be lower because of uncertain market conditions .
Gift and Estate Tax Basics
Under the TCJA , the exemption increased from $ 5 million to $ 10 million , with annual indexing for inflation . Taxable estates exceeding the exemption amount now have the excess taxed at a flat 40 % rate .
In addition , cumulative lifetime taxable gifts exceeding the exemption amount are now taxed at a flat 40 % rate . Taxable gifts are those exceeding the annual federal gift tax exclusion ( exclusion ), which is $ 18,000 for 2024 . If you make gifts in excess of the exclusion , the excess reduces your exemption dollar-for-dollar . Under the unlimited marital deduction , most transfers between spouses are not subject to the federal estate and gift tax . However , this deduction is limited if the spouse is not a U . S . citizen .
For example , suppose an unmarried taxpayer gifted private stock to 10 family members valued at $ 1.18 million in 2024 . After the annual gift tax exclusion is applied totaling $ 180,000 , the exemption can shelter the remaining $ 1 million from gift tax . That leaves $ 12 million of exemption available for estate and or gift tax planning ( assuming the taxpayer did not utilize any part of their exemption in a previous year ).
Valuation
Determining the value of a gifted asset can also prove to be challenging especially when there is no market in which it can be valued . This question needs to be answered before taxpayers can make decisions about how much can be gifted or what value needs to be included on a decedent ’ s estate tax return .
For gift and estate tax purposes , IRS Revenue Ruling 59-60 identifies eight factors to help a taxpayer evaluate nonpublicly traded stock .
08 | VIEWPOINTS : ISSUE 2 2024