Tis the season to battle it out on The Hill. You may have heard about a little thing called Tax Reform. Well, the House of Representatives passed its version of the tax reform bill a few weeks ago. Recently, the Senate passed its version and, shockingly (sarcasm inserted here), they do not match. Both houses have until December 22nd, to agree on many issues, including tax reform, before The Government Shutdown of 2017 begins.
The house and senate bills both mention change in the area of estate and gift. Lucky for us taxpayers, they do agree on doubling the lifetime estate and gift exemption starting in 2018. However, the Senate bill would end that increase in 2026. The lifetime estate and gift exemption amount in 2017 is $5.49 million for individuals and $10.98 million for married couples. An increase will allow taxpayers to transfer almost twice the amount of cash and property free from estate and gift tax.
To be clear, the lifetime estate and gift exemption amount is the total lifetime amount that can be passed to another individual free from estate or gift tax. It is separate from the annual exclusion which allows taxpayers to yearly gift an amount exempt from filing a gift tax return and without reduction of the lifetime estate and gift exemption. Current law requires a gift tax return for any cash or property gifted in excess of the annual exclusion to an individual by an individual in the same tax year. The annual exclusion for 2017 is $14,000. The LA times published as article titled “Here are the 5 major differences between the House and Senate versions of the GOP tax plan” on November 10, 2017 incorrectly stating that the annual exclusion will double under the new tax reform to $28,000 in 2018. That may have been a Christmas Wish as the IRS states the annual exclusion is currently set to increase to only $15,000 in 2018.
A big difference between the two bills is the treatment of the estate and generation skipping (GST) tax. The House bill would start a slow repeal of the estate and GST tax starting in 2018 and ending with a full repeal in 2024. The House bill maintains the “step-up” basis in assets (increase the basis of the asset to the market value) passed to beneficiaries. The Senate bill makes no mention of a repeal.
This is not the first time that an estate tax repeal was on the chopping block. In 2010, during the Obama administration, the estate tax was set to be repealed in the Taxpayer Relief Act. However, in 2011, Congress decided not to repeal the estate tax and all those poor estate tax planning attorneys were back at work.
A conference committee of House and Senate leaders has been created to discuss changes needed to the tax bill in order to find a merry middle to this tinselly tax reform. While change is still simmering and uncertainty bright, call your estate attorney and accountant, to plan for the eternal silent night.
By Kelly Stout, CPA