The Tax Cuts and Jobs Act of 2017 has brought about a dramatic, albeit temporary, change to the estate and gift tax regulations. As a result of the new law, the exemptions for the transferred property have been increased from $5 million, under the previous law, to $10 million for individuals. For married couples filing jointly, the exemption has increased to $22.4 million. The gift tax exclusion has now been raised to $15,000 annually.
Married couples are allowed to gift a total of $30,000 per recipient of gift. This gift tax exclusion has been a helpful tool for the avoidance of estate taxes by allowing individuals to make gifts of wealth to others during someone’s lifetime. As a result of the new estate tax exemption being increased so dramatically, gifting to avoid paying estate tax may no longer be necessary, at least for the time being.
Carrying over from the previous year, the rule regarding the increase in basis for inherited property will continue in its current form. A person who inherits appreciated property will have their basis in the property increased to the fair market value of the asset on the date of the decedent’s death. This rule offers a great tax benefit to heirs because any pre-death unrealized gain on the asset becomes exempt from taxation. For instance, a grandfather bought stock in Coca Cola in 1965 for $1,000. He wants to leave those shares to his grandson when he dies.
The fair market value on the day of the grandfather’s death is $125,000. Had the grandfather sold his shares before he died, he would have a taxable capital gain of $124,000. Because the grandson inherits the shares, his basis in the shares becomes $125,000. If the grandson were to sell the shares the next day for $125,000, then he would pay no tax, because he would not have again.
If you need help with your taxes, please contact or call us at (201) 692-1600.