Rich Americans May Be About To Lose A Tax Benefit They Love
Rich Americans May Be About To Lose A Tax Benefit They Love — and now they're racing to get their affairs in order
Christy Bieber Mon, October 21, 2024 Moneywise
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The clock is ticking for wealthy families who want to take advantage of a major tax break that allows for the tax-free transfer of up to $27.22 million in assets.
The tax break was established by the Tax Cuts and Jobs Act, which was signed into law in 2017, and it is sunsetting automatically in 2025 — so it could disappear for the foreseeable future.
Here's what the tax break is, along with some details on how families are rushing to take advantage of it and some advice on whether you should do the same.
Tax breaks on wealth transfers could be cut in half next year
The Tax Cuts and Jobs Act made many changes to the tax rules, but one of the biggest modifications involved a significant increase to the estate and gift tax exemption.
In 2017, wealthy individuals could transfer a total of $5,490,000 in assets without incurring estate or gift taxes. This is called the lifetime exemption and it applies to gifts you make above the annual exempt amount, as well as to assets that you transfer upon your death.
The new law significantly increased the amount you could transfer. The limit jumped up to $11,180,000 in 2018 and has been adjusted upward automatically each year.
In 2024, it's possible to transfer as much as $13,610,000 without owing taxes. This is per person doing the transferring. Married couples can combine their exemptions to transfer $27.22 million.
That big increase will go away next year unless lawmakers act again. When it goes away, the amount you can transfer tax-free will fall to somewhere in the $6 million to $7 million range. Assets above that threshold will be subject to a 40% transfer tax.
As a result of this change, many wealthy families are eagerly transferring assets this year while they can still take advantage of the larger exemption to move money to children and other loved ones without owing the IRS a cut.
Should you follow the lead of wealthy families?
While the change to the estate and gift tax exemption could profoundly impact wealthy Americans, it is likely to have no consequences at all for the vast majority of people.
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