Tax Cut & Jobs Act: Estate & Gift Tax Exemption Doubles

Caution: This explanation is general in nature and should not be used for specific planning. Contact a tax professional for your specific planning needs.

The new tax act  (Tax Cuts and Jobs Act – TCJA) effective beginning in 2018 has doubled the estate and gift tax exemption.

Before the TCJA, the first $5 million (as adjusted for inflation in years after 2011) of transferred property was exempt from, estate and gift tax.
For estates of decedents dying and gifts made in 2018, this “basic exclusion amount” as adjusted for inflation would have been $5.6 million, or $11.2 million for a married couple with proper planning and estate administration allowing the unused portion of a deceased spouse’s exclusion to be added to that of the surviving spouse (known as “portability”).

Exclusion doubled. The new law temporarily doubles the amount that can be excluded from these transfer taxes. For decedents dying and gifts made from 2018 through 2025, the TCJA doubles the base estate and gift tax exemption amount from $5 million to $10 million. Indexing for post-2011 inflation, brings this amount to approximately $11.2 million for 2018, and $22.4 million per married couple, with some basic portability techniques.

A related transfer tax called the generation-skipping transfer (GST) tax is designed to prevent avoidance of estate and gift taxes by skipping transfers to the next successive generation. The TCJA doesn’t specifically mention generation-skipping transfers, but since the GST exemption amount is based on the basic exclusion amount, generation-skipping transfers should also benefit from the post-2017 increased exclusion.

This increased exclusion amount may have an impact on your current estate plan and cause you to consider the need to redraft some important documents, including wills and trusts.

We hope this information helps you understand this change. Please call if you wish to discuss how it, or any of the many other changes in the TCJA, could affect your particular tax situation, and the planning steps you might consider in response.

Tax Cut and Jobs Act - What you need to know about the new tax laws.*

We are beginning the New Year with a new tax law. This page will detail many of the changes that are important. Let’s start with individual tax rates.

In order to show the effects of the bracket and rate changes there are comparative examples of tax liability based on specified levels of taxable income (very interesting). Keep in mind that taxable income at the most basic level is gross income less the standard deduction. The standard deduction for 2018 is $12,000 for singles, $18,000 for heads of household and $24,000 for married filing jointly versus $6,350, $9,350, and $12,700 for 2017, respectively.

Examples - Comparison of Tax Liability

Single Taxpayer

Taxable Income2018 Tax2017 TaxDollar Reduction
$9,525$953$963$10
$38,700$4,454$5,414$960
$82,500$14,090$16,364$2,274
$157,500$32,090$37,082$4,992
$200,000$45,690$49,400$3,710
$500,000$150,690$153,819$3,129
$500,000+$150,690 + 37% of excess

Married taxpayers filing joint returns and surviving spouses

Taxable Income2018 Tax2017 TaxDollar Reduction
$19,050$1,905$1,925$10
$77,400 $8,907$10,828$1,921
$165,000$28,179$33,085$4,906
$315,000$64,179$79,168$14,989
$400,000$91,379$107,217$15,838
$600,000$161,379$182,831$21,452
$600,000+$161,379 + 37% of excess

Below you will find a comparison of the tax rate schedule for single taxpayers plus the tax rate schedule for married taxpayers filing jointly and surviving spouses. The new tax rates are under the 2018 heading and the old are under the 2017 heading.

Tax Rate Comparison

Single Taxpayers

2018

Taxable Income OverBut Not OverIs Taxed at
$0$9,52510%
$9,525$38,70012%
$38,700$82,50022%
$82,500$157,50024%
$157,500$200,00032%
$200,000$500,00035%
$500,00037%

2017

Taxable Income OverBut Not OverIs Taxed at
$0$9,32510%
$9,325$37,95015%
$37,950$91,90025%
$91,900$191,65028%
$191,650$416,70033%
$416,700$418,40035%
$418,40039.6%

Married Taxpayers Filing Joint Returns & Surviving Spouses

2018

Taxable Income OverBut Not OverIs Taxed at
$0$19,05010%
$19,050$77,40012%
$77,400$165,00022%
$165,000$315,00024%
$315,000$400,00032%
$400,000$600,00035%
$600,00037%

2017

Taxable Income OverBut Not OverIs Taxed at
$0$18,65010%
$18,650$75,90015%
$75,900$153,10025%
$153,100$233,35028%
$233,350$416,70033%
$416,700$470,70035%
$470,70039.6%
*This explanation is general in nature and should not be used for specific planning.  Consult a tax professional for your specific planning needs.

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