As a reminder, on November 26, 2019, the IRS clarified that individuals that take advantage of the increased gift tax exclusion amount (currently $12,920,000 in 2023), would not be adversely impacted when the exclusion amount drops to pre-2018 levels in 2026. Final regulations regarding this were made formal on November 26, 2019.
Gift and estate taxes apply to transfers of assets to others during a person’s lifetime or transfers upon death (or a combination of both) that go beyond the estate and gift tax exclusion amount, also known as the basic exclusion amount (BEA). The credit is first applied to any gifts that are made during a person’s lifetime, and to the extent any credit remains at the persons death, the balance is applied against the value of the estate to determine if an estate tax is due.
In 2026, the basic exclusion amount is due to revert to its pre-2018 level of $5 million, as adjusted for inflation. In order to quell fears of clawback by the IRS, final regulations were released to clarify that people taking advantage of the increased basic exclusion amount by making gifts between 2018 and 2025 would not be harmed after 2025 when the amount is scheduled to drop. Therefore, people that plan to make larger gifts now can do so without being concerned that they will lose the tax benefit of the higher exclusion amount when it decreases.
If you or a friend or family member needs to explore making larger gifts to others (or trusts) to take advantage of the current federal basic exclusion amount for estate and gift tax purposes, please call our office at (760) 448-2220 or reach out to us at https://www.geigerlawoffice.com/contact..cfm.