Sunset (and Sunrise?) of Higher Estate and Gift Tax Exemption Thresholds
The federal estate tax applies to transfers of assets made by a taxpayer at their death, while the similar gift tax applies to transfers made while alive. However, those taxes do not apply to transfers that fall below the lifetime exemption thresholds established by law. As such, a taxpayer can give away assets tax-free so long as the value of those assets is less than the applicable threshold.
The 2017 Tax Cuts and Jobs Act (TCJA) doubled the amounts that could be transferred without triggering estate or gift taxes, from $5 million to $10 million per individual and from $10 million to $20 million per married couple. Those thresholds were $13.61 million and $27.22 million, respectively, when adjusted for inflation in 2024. But the TCJA did not make those adjustments permanent. Instead, it provided that the higher thresholds would revert to their lower amounts at the end of 2025 if Congress did not extend it.
Congress did not, in fact, do so before the clock struck midnight on New Year’s Eve, marking the return of the lower thresholds.
But the sunset of the higher exemption was quickly followed by the sunrise of a new regime in Washington. Unified GOP control of the federal government makes it distinctly possible that it will move to bring back the higher amounts in this legislative session. It remains to be seen whether the party’s telegraphed intent to do so transforms into actual legislation that makes its way through both houses of Congress. Given this uncertainty, clients should consult with their tax attorneys to determine how to prepare for either the return of higher thresholds or the current status quo.
If you have any questions or concerns about estate or gift taxes, please contact David Deutsch at Maddin Hauser.