IRS Floats Plan to Allow Higher Estate, Gift Tax Exclusions

Individuals will be allowed to take advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 without being adversely impacted after 2025, when the exclusion amount is scheduled to drop to pre-2018 levels.

The IRS explains that 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 a credit — formerly known as the unified credit — based on an applicable exclusion amount.

The applicable exclusion amount is the sum of the basic exclusion amount (BEA) established in the statute, and other elements (if applicable) described in the proposed regulations.

The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax.

"To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased BEA, the proposed regs provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death," the IRS said.

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