The Tax Cuts and Jobs Act (TCJA), enacted in 2018, brought significant changes to the U.S. tax code, with substantial implications for both individuals and businesses. One of the most notable changes was the dramatic increase in the lifetime estate and gift tax exemption, known as the basic exclusion amount (BEA). This exemption rose from $5,490,000 in 2017 to $11,180,000 in 2018, and as of 2024, it stands at $13,610,000, adjusted annually for inflation. For married couples, the combined BEA is $27,220,000 in 2024.
Understanding the BEA
The BEA represents the total amount an individual can give away during their lifetime without incurring federal estate or gift taxes. This exemption also applies at death; if your gross estate exceeds the BEA, your estate must file an estate tax return. Whether you owe any estate tax will depend on the specifics of your estate plan.
Impending Changes
The TCJA is set to sunset at the end of 2025, causing the BEA to reset to a projected $7 million. This reduction is significant and could have substantial implications. With the end of 2025 approaching, it is crucial to begin discussions on how to prepare for this change, especially if your current estate value exceeds $5 million individually.
Action Steps
- Review Your Plan: Given the impending reduction in the BEA, it is essential to review your plans with your attorney to ensure it is optimized for the current and future tax landscape.
- Consider Sizable Gifts: The current higher BEA presents a unique opportunity to make substantial gifts. These gifts can reduce the size of your taxable estate and take advantage of the larger exemption before it decreases.
- Plan Ahead: Starting the process now allows you to make informed decisions and implement strategies that align with your goals and tax obligations.
Why Act Now?
The larger BEA is a “use it or lose it” opportunity. Once the TCJA sunsets in 2025, the lower BEA will take effect, limiting the amount you can give away tax-free. Acting now ensures that you can maximize your tax-free gifts and reduce potential estate tax liability.
MTA and Your Taxes
At Maddox Thomson and Associates, we are here to assist you with navigating these changes. Our experienced team can provide you with the insights and strategies needed to optimize your goals in light of the upcoming changes. We encourage you to reach out to us and your estate attorney to discuss your options and take proactive steps.
The sunset of the TCJA presents both challenges and opportunities. By understanding the changes and planning accordingly, you can minimize your estate tax burden and protect your assets for future generations. Don’t wait until the last minute—start now to make the most of the current BEA and ensure your goals are tax-efficient.