The Treasury Department and the IRS have issued proposed regulations that provide 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.
These proposed regulations implement changes made by the 2017 Tax Cuts and Jobs Act (“TCJA”). The TCJA temporarily increased the “basic exclusion amount” (“BEA”) from $5 million to $10 million for tax years 2018 through 2025, adjusted for inflation. For 2018, the inflation-adjusted BEA is $11.18 million. In 2026, the BEA will revert to the 2017 level of $5 million as adjusted for inflation. As a result, because of the way gift and estate taxes are calculated, there was concern that gifts exempt from gift tax by the increased BEA could later be subject to estate tax.
In sum, once the proposed regulations are adopted, if you have made, or plan to make, large gifts between 2018 and 2025, you will be able to do so without concern that you will lose the tax benefit of the higher exclusion amount once it decreases after 2025.