How the Tax Cuts and Jobs Act of 2017 impacts Estate Taxes and Gift Taxes

Estate tax and gift taxes are part of tax overhaul

The Tax Cuts and Jobs Act of 2017, enacted in December 2017, touched so many pieces of our tax law, the Internal Revenue Service is still issuing guidance on how the reforms will impact individuals and businesses.

The 400-page bill was the biggest tax overhaul in two decades and its impacts on individual taxpayers are wide-ranging. This is the sixth part of a series in how the tax reform bill can affect you with a focus on the estate tax and gift tax.


Estate Tax

The estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death.

Under the Tax Reform, the basic exclusion amount for an estate tax return for a 2018 date of death increases to $10,000,000, before taking into account the necessary inflation adjustment.

To perform a valuation of your estate, the IRS recommends using the fair market value of these items, not necessarily what you paid for them or what their values were when you acquired them.

The total of all of these items is your “Gross Estate.” This includes property like cash and securities, real estate, insurance, trusts, annuities, business interests, and other assets.

Once you have valued your Gross Estate, certain deductions are allowed in arriving at your “Taxable Estate.”

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Most relatively simple estates do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 – 2005; $2,000,000 in 2006 – 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent’s dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, and $11,180,000 in 2018.


Gift Tax

If you give someone money or property during your life, you may be subject to federal gift tax, which is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return.

This applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

The donor’s intention doesn’t matter either. The gift tax applies whether or not the donor intends it as a gift.

Due to changes over the years in tax rates for the top brackets, it’s best to talk to a professional tax service to determine your liability.