Tax Update:  Transfer tax exemptions and rates

Posted by lgtcpa on Oct 19, 2016

The gift tax continues to follow the estate tax exemption and rates.

Transfer tax exemptions and rates

Year

Estate tax exemption1

Gift tax exemption

GST tax exemption

Estate, gift and GST tax rate

2016

$5.45 million

$5.45 million

$5.45 million

40%

Future years

Indexed for inflation

Indexed for inflation

Indexed for inflation

40%

1 Less any gift tax exemption already used during life.

Any gift tax exemption used during your lifetime reduces the estate tax exemption available at death. Using up some of your exemption during your lifetime can be tax-smart, depending on your situation and goals.

But keep in mind that you can exclude certain gifts of up to $14,000 per recipient each year ($28,000 per recipient if your spouse elects to split the gift with you, or you’re giving community property) without using up any of your gift and estate tax exemption. Note that the 2016 exclusion amount hasn't increased over the 2015 amount. Although, the exclusion is adjusted for inflation, it increases only in $1,000 increments. So it typically goes up only every few years. There is a possibility of this increase in 2017.

Warning: You need to use your 2016 exclusion by December 31, 2016. The exclusion doesn’t carry over from year to year. For example, if you don’t make an annual exclusion gift to your granddaughter this year, you can’t add $14,000 to your 2017 exclusion to make a $28,000 tax-free gift to her next year.


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Topics: Accounting Tips, Tax