Will the Sun Set in 2025 or Will Current Federal Estate and Gift Tax Exemption Levels be Extended?
In 2017 Congress passed and the President signed the Tax Cuts and Jobs Act (TCJA). The TCJA made significant changes to individual income taxes as well as estate and gift taxes. This included raising the estate, gift, and generation skipping transfer tax exemptions from $5 million per person indexed for inflation to $10 million per person indexed for inflation. With the TCJA, Congress chose to make many of the individual provisions temporary. For individual taxpayers, almost all provisions of the TCJA “sunset” at the end of 2025.
“Sunsets” are provisions of a law that cause provisions of the law to expire at a specified date. If not extended or made permanent before, beginning in the tax year of 2026 the estate and gift tax exemptions will revert to their former levels under prior tax law. The current estate tax and gift tax exemption is $13.99 million per person. Under the prior law, the exemption would be roughly one-half of that amount.
The incoming President has stated that he will seek to extend the law, while it seems likely it will be extended, it is not certain. Republicans hold a razor thin majority of the House. The smallest since the early 1900s. It takes 218 votes for a majority in the House, the Republicans currently have 219 seats, so they need nearly 100% of their members to be on board to pass anything. As we saw with Mike Johnson’s recent election as speaker with no votes to spare, things will be close. There is also next to zero chance that the Republicans can get 60 votes in the Senate. Therefore, this will need to go through the more cumbersome budget reconciliation process. Additionally, Republicans in states like California and New York that have higher state income taxes will likely want to negotiate an increase in the SALT deduction cap. In other words, there is still a lot of ground to be covered.
If your net worth is at or above $14 million you should be speaking with your estate advisors right now. As the year progresses, it will get more and more difficult to find someone willing to help you with your planning. We may not know the answers until late in the year or even early next year. You may need to have planning documents in place long before you will know if you need them.
As we found out in 2011, 2012, and again in 2021, if it appears sunset will occur, there will be a massive rush to do things in a very short period of time. Speak to a qualified advisor now and be ready for changes that may come, even if you wait to implement them.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.