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 -Published: Monday, November 25, 2019- Making large gifts now won’t
harm estates after 2025, said IRS
By the A.M. Costa Rica staff The Treasury Department and the Internal Revenue Service issued on Friday the final regulations confirming that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. Treasury Decision No. 9884, available in the Federal Register site, implements changes made by the Tax Cuts and Jobs Act, the tax reform legislation enacted in December 2017. Though the final regulations largely adopt the proposed regulations published last November, they also include clarifying technical language addressing concerns raised in several public comments as well as four examples which, among other things illustrate the impact of inflation adjustments. “As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.” said the IRS in its statement. In general, gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is determined after applying for a credit – formerly known as the unified credit – based on an applicable exclusion amount, said the IRS. The applicable exclusion amount is the sum of the basic exclusion amount established in the statute, and other elements, if applicable, described in the final regulations. The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax. According to the IRS, the Tax Cuts and Jobs Act temporarily increased the basic exclusion amount from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2019, the inflation-adjusted basic exclusion amount is $11.4 million. In 2026, the basic exclusion amount will revert to the 2017 level of $5 million as adjusted for inflation. “To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased basic exclusion amount, the final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the basic exclusion amount applicable to gifts made during life or the basic exclusion amount applicable on the date of death,” said the IRS. More information about Tax Cuts and Jobs Act provisions can be found on the Tax Reform chapter at the IRS.gov site. ------------------------ How many expats in Costa Rica are likely to be affected by the gift or estate taxes? We would like to know your thoughts on this story. Send your comments to news@amcostarica.com |
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