2018 Federal Transfer Tax Exemptions

Take-Away: The IRS just announced an increase in the federal transfer tax exemptions that will begin in 2018. Source:  Revenue Ruling 2017-58.

Lifetime Exclusion Amount: This amount per taxpayer will increase from $5.49 million to $5.6 million (a $110,000 increase.) That means that a married couple could leave at death $11.2 million federal estate tax-free. This increase also means that a timely portability election on the death of one spouse provides an even greater transfer tax relief benefit to the surviving spouse. Since this is a lifetime exclusion amount, it also means that a taxpayer could alternatively make lifetime gifts up to $5.6 million without paying a 40% federal gift tax. For those clients who have maxed out their lifetime gifting already in reliance on their lifetime exemption, they will have another $110,000 that they can now gift tax-free to their donees beginning in January of 2018.

Annual Exclusion Amount: The last increase in the annual gift tax exclusion amount was back in 2013 when it rose to $14,000 per donee (so long as the gift was of a present interest.) That annual exclusion amount increases beginning in 2018 to $15,000 per donee. You will recall that a year or so ago there was some talk of limiting the number of annual exclusion gifts that a donor could make in a single calendar year; while there has been no renewal of that proposal to curb the number of annual exclusion gifts under the recent varied reports on tax reform, that proposed limitation on the number of annual exclusion gifts a donor may make may resurface if the gift tax is viewed by reform motivated Congress less as a stand-alone revenue generator and more as a protective ‘back-stop’ to prevent income shifting from high income donors to low-income donees.

Marital Deduction:  A seldom encountered exemption is the annual gift opportunity by a spouse to a foreign national spouse. While there is the unlimited federal gift tax marital deduction for citizens, that unlimited gift tax marital deduction does not apply to a foreign national spouse. This year a spouse can gift to his/her foreign spouse $149,000 without a gift tax imposed. That gift tax marital deduction exclusion amount increases in 2018 to $152,000 per year.

Conclusion: As you meet with your clients for end-of-year planning you will want to mention these new exemption amounts that become available starting in 2018 when you discuss end-of-the-year gifting.