On November 2, 2017, the House of Representatives introduced H.R. 1, dubbed the Tax Cuts and Jobs Act.
This bill is not law and, in fact, has a long way to go before becoming law – there will be debate, revision, and a Senate vote. If the Bill survives all that, it could then receive Presidential approval.
Although the Bill targets personal income tax, and corporate income tax, and estate, gift and generation-skipping transfer taxes, this article focuses only on estate, gift and generation-skipping transfer taxes.
Under current law, the first $5,600,000 of an estate is exempt from the estate, gift and generation-skipping transfer taxes – an amount that is doubled for married couples. Any transfers over $11,200,000 (for a married couple) are subject to a flat tax rate of 40%. Tax basis in the inherited property steps up to the fair market value on date of death.
Under the Bill, from January 1, 2018 through December 31, 2023, the exemption per individual would increase from $5,600,000 to $10,000,000, adjusted for inflation. After January 1, 2024, the estate and generation-skipping transfer taxes are repealed. However, the gift tax would remain, but with a lifetime exemption of $10 million, adjusted for inflation and a top gift tax rate of 35%.
The Bill would retain basis “step-up” on date of death. This means that even though an estate would not be subject to estate taxes starting on January 1, 2024, the beneficiaries will receive a step-up in basis equal to the fair market value of the inherited property on the decedent’s date of death.
The repeal of generation-skipping transfer taxes would create an excellent opportunity for large-scale gifting. We will post future blogs as the debate process continues.
This post was written by Steven Seel.