On October 19, 2017 the IRS released Revenue Procedure 2017-58 (available here), announcing inflation-adjusted figures.
In addition to announcing the income tax bracket adjustments due to inflation, the Revenue Procedure also announced new annual exclusion amounts for gift tax as well as a new basic exclusion amount available against estate tax. These figures are applicable for tax years beginning in 2018.
The new annual exclusion for gift tax has been increased for the first time since 2013 from $14,000 per donor-recipient pair to $15,000 per donor-recipient pair. For example, beginning in 2018 a married donor couple who has two married children can now make a total of $120,000 of gifts without invading either donor’s available basic exclusion against estate tax. Under the 2017 gift tax exclusion, the same couples’ annual exclusion gifting would be limited to $112,000.
This is accomplished by one donor making four $15,000 gifts totaling $60,000. These four gifts consist of a $15,000 gift to each child and a $15,000 gift to each child’s spouse. Similarly, the donor’s spouse can make another $60,000 of gifts in the same fashion, thereby permitting a total of $120,000 of annual exclusion gifts.
The Revenue Procedure also announced that the basic exclusion amount available against estate tax for decedents dying in 2018 has been increased from $5.49 million to $5.6 million. Using portability, this allows a married couple to shield up to $11.2 million dollars before federal estate tax is incurred. At the current 40% federal estate tax rate, this inflation adjustment provides potential estate tax savings of $88,000.
If you are interested in implementing annual exclusion gifts or estate tax management, please contact a member of our Tax, Trusts and Estates Group for additional advice.