Articles

To Give Or Not to Give Is No Longer A Taxing Issue by Jeffrey M. Mutnik, CPA/PFS

Posted on December 27, 2018

One of the welcome provisions contained in the Tax Cut and Jobs Act (TCJA) is a doubling of the estate, gift and generation-skipping transfer tax exemptions for the years 2018 through 2025. Nevertheless, on Jan. 1, 2026, the law calls for those amounts to roll back to their inflation-adjusted 2017 levels. Due to the temporary nature of this provision, many high-net worth families have been left to wonder whether the government will penalize them later for making gifts during the brief period of higher exemption limits. This is no longer an issue, thanks to proposed regulations recently issued by the IRS and U.S. Treasury.

Under U.S. tax law, transfers of assets between U.S. spouses are generally tax-free. However, U.S. citizens and residents who make transfers to all other people via gift or bequest must account for the potential tax liabilities of each of those transactions. If the total of all gifts one person makes to another person in 2018 does not qualify for or exceeds the annual gift-tax exclusion of $15,000, then the excess amount will be absorbed by the grantor’s lifetime exclusion, which the TCJA increased to $11.18 million in 2018, up from $5.49 million in 2017. This higher lifetime exclusion will be adjusted annually for inflation beginning in 2019, when it will be $11.40 million, and through tax year 2025.

Because the TCJA increased the exemption for only eight years and failed to provide immediate guidance about what the sudden reduction in the exemption level would mean for taxpayers after 2025, many families put their estate planning on hold for most of 2018. With the recently issued Proposed Regulations, the government makes it clear that it desires to respect transactions that occur during this eight-year period using the heightened exemption and will not penalize taxpayers who take advantage of this. Therefore, even if your total assets do not rise to the level of being taxed today, the hope of winning the lottery is alive and well and could certainly change your fortunes tomorrow.

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.