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The Treasury Department and the IRS recently issued final guidelines on the gift and estate tax exemption amounts, which were raised by the Tax Cuts and Jobs Act, allowing people to make large gifts through 2025 without having to worry about losing the tax benefit of the higher exclusion – even if they don't die before the rates revert back to previous levels.
The tax reform act raised the basic exclusion amount to $10 million from $5 million through 2025, when provisions are set to expire. Assets exceeding that threshold are subject to a 40 percent tax rate.
After adjusting for inflation, the exclusion amount for 2019 is $11.4 million (double for married couples).
"Individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025," the IRS wrote in a press release.
This means that if an individual were to put away $6 million in a trust this year to pass on to a family member, no matter when the person dies the full amount would remain exempt (even after the exclusion reverts back to $5 million).
Adjusting the estate tax has been targeted by many of the 2020 Democratic candidates as a way to make the tax system more progressive.
Independent Vermont Sen. Bernie Sanders, for example, proposed applying the estate tax to assets worth more than $3.5 million. Under his plan, the first $3.5 million worth of assets would be exempted, after which a 45 percent rate would be triggered. For those with assets worth between $10 million and $50 million the rate would rise to 50 percent – and to 55 percent for an estate valued between $50 million and $1 billion.
New Jersey Sen. Cory Booker has floated raising the estate tax, and California Sen. Kamala Harris has also proposed exposing more estates to a higher tax rate.