A few weeks ago, the Senate passed the new tax law, (which had been called the “Tax Cuts and Jobs Act” and due to Senate parliamentarian objections is now ‘An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”) and then the House of Representatives passed it in its final form. The President signed the legislation on the last business day before the Holidays. The changes are generally effective January 1, 2018. The provisions relating to individual taxpayers, including those relating to estate, gift, and generation-skipping taxes all sunset after December 31, 2025, with the law reverting to prior law.
Here are the significant changes of interest to estate planning attorneys:
Estate & Gift Tax-related provisions:
- The Estate and gift tax exemption is doubled. The basic exclusion amount increases from $5 million to $10 million, adjusted for inflation after 2011. In 2018, the exclusion will be $11.2 million per person. So, a couple could pass $22.4 million free from tax.
- The Generation-Skipping Transfer tax exemption is still tied to the Estate and Gift tax exemption. So, it too doubles from $5 million to $10 million with inflation adjustment after 2011. The GST exemption will be $11.2 million in 2018.
- The step-up in basis remains unaffected by the new legislation.
- Unrelated to the new tax law, the present interest annual exclusion changed for the first time in years. In 2017, it was $14,000 per person per donee, and in 2018 it will be $15,000 per person per donee. (The last time it changed was at the end of 2012 / beginning of 2013, when it changed from $13,000 to $14,000.)
Individual Income Tax Provisions:
The number of brackets remains the same, but some rates are lowering.
The new brackets are:
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)
- 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)
- 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)
- 37% (over $500,000; over $600,000 for couples)
- The personal exemption, which would have been $4,150 per person in 2018, is eliminated. However, the child tax credit doubles from $1,000 to $2,000. Further the credit phases out at $400,000 instead of $110,000 for joint filers under prior law. Up to $1,400 of the credit is refundable.
- The standard deduction amount for 2018 increases from $6,500 to $12,000 for an individual and from $13,000 to $24,000 for a married couple filing a joint return.