John D. Teter Law Offices

REQUEST A CONSULTATION TODAY

408-866-1810

1361 South Winchester Boulevard, Suite 113
San Jose, CA 95128
Subscribe to this list via RSS Blog posts tagged in gift tax

San Jose, CA gift tax attorney marital deductionMany people have strong feelings about the inheritance they plan to leave to loved ones when they pass away. After working hard to acquire assets throughout your life, you do not want the value of these assets to be reduced through estate tax or gift tax. If this is something you are concerned about, you may be interested to learn about an estate preservation tool called the unlimited marital deduction.

The Unlimited Marital Deduction Allows Married Couples to Be Treated as One Economic Entity

The unlimited marital deduction lets an individual leave money or property to his or her spouse without incurring immediate federal taxes or penalties. The value of the property that you can transfer is unlimited, and this transfer can take place during your lifetime or upon your death. In 1982, the unlimited marital deduction took effect, eliminating the federal gift and estate tax for property transfers involving spouses. This provision changed the law so that married spouses are now treated as one financial unit when it comes to property transfers.

The Marital Deduction Delays Estate Tax Liability

Spouses have the opportunity to transfer all of their property to a surviving spouse if they choose to do so, and they can do this without incurring federal gift tax or estate tax liability. However, this property is still included in the surviving spouse’s taxable estate, and it is therefore subject to taxation when the second spouse passes away. The unlimited marital deduction effectively delays the estate tax liability until the second spouse in a marriage passes away. It should be noted that in order to take advantage of the unlimited marital deduction, the spouse receiving the property transfer must be a U.S. citizen. However, other estate planning instruments such as a qualified domestic trust may help those who are not yet U.S. citizens gain the marital deduction and reduce their estate taxes.

...

San Jose tax law attorney for estate taxes and TCJAWhen a large amount of money is transferred as a gift, there are certain gift taxes that apply. Similarly, funds left to heirs after an individual passes away are subject to estate taxes. Typically, a unified rate schedule is applied to an individual’s cumulative taxable gifts and/or estate in order to reach a net expected tax. The tax owed is determined after a credit contingent on an exclusion amount is applied. The basic exclusion amount (BEA) is first applied to the gift tax. Any remaining credit is then applied to the estate tax. The Tax Cuts and Jobs Act (TCJA) has instituted several major changes to the way gift tax and estate tax are calculated. If you are considering making a large gift in the next several years, read on to learn more about how these changes may affect you.

How the TCJA Changed Gift Taxes and Estate Taxes

The Tax Cuts and Jobs Act made far-reaching changes to United States tax law. One of these changes involves the basic exclusion amount that is applied to gift taxes and estate taxes. The TCJA temporarily doubled the BEA for the years 2018-2025. The BEA rose from $5 million to $10 million, or $11.18 million when adjusted for inflation. In 2026, the BEA is expected to return to the amount (after being adjusted for inflation) that it was before 2018. This means that you may currently leave just over $11 million to heirs without paying federal estate or gift tax. The annual gift exclusion remains $15,000.

IRS Clarifies How the Increased BEA Will Affect Taxpayers

Many taxpayers have expressed concerns about what will happen once the BEA returns to the pre-2018 amount. They worry that taking advantage of the increased BEA might negatively impact them in the future. In response, the IRS has issued a clarifying explanation. There is a special rule that allows estate tax credits to be calculated using either gifts made during a person’s life or the BEA applicable on their date of death – whichever is higher. If you want to make a large gift before 2026, you do not have to worry about losing the benefit of the increased BEA. Even if the basic exclusion amount has reverted to a lower dollar amount when a person dies than it was when s/he made a large gift, the gift tax portion of the estate tax calculation is still based on the higher BEA that previously applied.

...

gift tax, transfer taxes, San Jose tax attorney, estate tax, gift tax returnIn the United States, we are all too aware of the taxes that affect our everyday lives, such as sales tax and income tax. However, there are additional taxes that apply in special situations, including when someone leaves assets to his or her heirs after their death and when a person gives someone a large gift of money or property. These taxes are known as transfer taxes, and people should be aware of the tax laws that apply in these situations.

Estate Tax

When a person dies, taxes may apply to the transfer of his or her property to his or her heirs. A complete accounting of one’s assets will be made, including cash, real estate, investments, and business interests, using the fair market value of these items. The total value of this property is known as the Gross Estate. Deductions from this amount may apply for debts, expenses related to estate administration, property left to charities, and property left to a surviving spouse.

...
BBB ABA State bar of california SCCBA MH 2016
Back to Top