Page 24 - San Antonio Vol 1 No 3
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JEFF JACKSON, CPA | Forensic Accounting
Increased Applicable Exclusion Amount Under
Tax Cuts and Jobs Act
One of the changes made with the passage of the Tax Cuts and Jobs Act (TCJA) was an
increase to the applicable exclusion amount on gi s and estates to $10 million from the prior $5 million. is is commonly referred to as the estate tax exemption.
is increase is only temporary and will revert to $5 million plus in ation adjustments for gi s made and dece- dents dying a er Dec. 31, 2025. e current in ation adjusted exclusion amount is $11.4 million per person in 2019.
e sunset of this increase poten- tially accelerates the planning for one’s estate. ere are some items to consider before rushing into utilizing the added exemption, one being that the donor’s basis will carry over to the person receiving the gi . is could lead to the situation where there is po- tential for gain on disposition by the person receiving the gi when the de- cision is made to dispose of the asset.
is makes the planning for which assets to gi more important. Also, if the client’s estate is just under or just over the current exemption amount, careful consideration needs to be giv- en as to the timing of the gi s. is planning requires the advisor to re-
view and plan for both the estate and gi tax implications as well as the income tax implications to
There are other proposals that have been announced and several more to be announced, so the temporary nature of this increased exemption may be even more temporary.
the donor and recipient of the assets gi ed.
ere always remains the possibil- ity of additional legislative changes. One such proposal was recently sub- mitted by Sen. Elizabeth Warren to the Senate of the United States. e legislation would reduce the basic ex- emption to $3.5 million and increase the tentative tax rates to 55%, 60% and 65% on larger estates. Bernie Sanders has also proposed increasing the es- tate tax on the wealthiest Americans. His plan would establish taxes as high as 77% on an estate above $1 billion which happens to be the top rate from 1941 to 1976. ere are other pro- posals that have been announced and several more to be announced, so the temporary nature of this increased exemption may be even more tempo- rary.
Many commentators have raised questions about the inconsistent tax treatment that may arise due to the temporary nature of the increased exemption amount and the possibil- ity of taxpayers who die a er 2025 not receiving the full bene t of the increased exemption. is possibility has o en been referred to as “claw- back” and was an issue in 2012 when there was the potential decrease to the exclusion amount in prior legislation. is le many advisors scrambling to complete gi documentation by year- end (December 31, 2012).
With most estate plans utilizing the marital deduction so that there is no tax on the estate of the rst to die, there is the possibility that the second spouse’s estate will have to navigate the complex rules relating to portabil- ity and the potential of di ering rate and exemption structures. e IRS has issued proposed regulations to alleviate these concerns, but the regu- lations are not entirely clear as to the calculations that must be made.
is article only scratches the sur- face of detail that must be taken into account when planning to utilize the increase in the estate tax exemption. Ignoring or not planning is rarely, if ever, the best solution, so please take the time to think through the estate and gi and the income tax implica- tions relating to transfers of wealth and the overall estate plan.
Jeff Jackson, CPA is a shareholder at Sol Schwartz & Associates, P.C. Jeff has been a certi ed public accoun- tant since 1992 and has been in public accounting since 1990. Jeff focuses on all areas of taxation and nancial planning, including individual, partnership, and corporate income taxation, along with estate, gift, and retirement planning. He relies on his business and investment experience to identify the many issues his clients may face, particularly in working with high net-worth individuals, their families, and closely held businesses. Contact Jeff at (210) 384-8000 Ext. 144 or via email at [email protected].
ATTORNEY AT LAW MAGAZINE · SAN ANTONIO · VOL. 1 NO. 3 24