The Internal Revenue Service (IRS) has proposed a potential benefit for the wealthy taxpayer, stating that people who give many gifts to their heirs as part of a generous but temporary provision of the 2017 Republican tax reform should not pay taxes on them.
Last year's tax law doubled the value of assets that can be transferred to heirs without generating federal inheritance taxes or lifelong gifts to nearly $ 11.2 million for an individual and $ 22.4 million — dollars for a couple. Thresholds increase slightly in 2019 and potentially more in the years to come before their expiration in 2025 when the exemptions return to half their current levels. The amounts of the exemption levels are taxed at 40%.
Property planning professionals feared that by 2026, the tax agency would attempt to collect taxes on donations already made based on duplicate exemptions. But the IRS recently said, in a draft regulation, that it would not seek such retroactive taxes. "Making big gifts now will not damage properties after 2025," the agency said in a brief statement.
The 2017 Tax Reduction and Employment Act doubled the estate and gift tax exemption, increasing the base amount from $ 5 million to $ 10 million per person. This amount is the amount that a natural person can give without taxes, avoiding the tax rate of 40% on real estate. With inflation-related adjustments, the present value of the property tax exemption is $ 11.4 million per person. But the increase in wealth taxes should temporarily decrease after 2025. The frequent question was whether donations would be taxed later when the exemption was lowered. The proposed rules released last year said no, but there is no certainty, and many questions remain.
With the issuance of IR-2019-189 from the Treasury, it now confirms that people who benefit from inheritance amounts and exemption from gift tax in force during the period 2018-2025 will not be negatively affected after 2025, when the value according to the IRS, people who plan to make large donations between 2018 and 2025, can do so without worrying about losing the tax benefit of the highest level of exclusion, as it drops after 2025.
What does this mean for tax planning? The regulations confirm that the massive recovery of wealth transfers under Trump's tax law will not be recovered. Although it is not a big surprise, because it respects the proposed rules, which were published a year ago. However, this final settlement brings firmness and certainty, a reason for you and your real estate lawyers to act and make gifts now, without worry.
For example, in 2019, suppose you deposit $ 10 million in a trust for your heirs and die in 2026 when the property tax exemption is reduced to $ 5 million. Your property should not pay taxes for this additional $ 5 million donation. Instead, according to the new regulations, the IRS claims that the $ 10 million in this example would be exempt forever.
The final settlement addresses the concerns expressed in the public comments and includes many examples that show how these calculations work. This remains a complicated and understandable area, such as the necessary exclusion amount (BEA), the exclusion of the unused spouse / deceased (DSUE), and the transfer of the generation omission (TPS).
Remember, the IRS points out that this only works if you offer gifts during the 2018-2025 period. Regulatory examples indicate that donors benefit from inflation adjustments. Because this benefit is "use it or lose it", it's time to take action.
