IRS Sets Federal Estate, Gift Tax Limits for 2017

The Internal Revenue Service (IRS) recently announced its federal estate and gift tax limits for 2017. These limits will have a significant impact on many Americans’ estate planning strategies for the coming year.

The federal estate and gift tax exemption will increase to $5.49 million per individual in 2017, compared to $5.45 million in 2016. A married couple will be able to protect up to $10.98 million from federal estate and gift taxes.

Meanwhile, the annual gift exclusion will remain steady at $14,000 in 2017. Individuals are able to make tax-free gifts of up to $14,000 per person for a single year. Contact our Newton estate planning lawyers for help to determine how much you can afford to give away.

How does the IRS determine federal estate and gift tax limits?

If you own a small business or have a large estate, it is important to be aware of these exemption limits. If your estate is worth more than the exemption limit, your estate will be subject to federal estate taxation at a rate of up to 40 percent. This can mean your heirs could lose a significant portion of their inheritance to the federal government.

President-Elect Donald Trump has stated he wishes to repeal the federal estate tax altogether and implement a new plan for estates worth more than $10 million. It’s not yet clear if he will be able to get such a measure through Congress, however.

If you live in Massachusetts, you also need to consider state estate taxes. If the value of your estate exceeds $1million in Massachusetts, you will owe a Massachusetts estate tax.

How do you avoid federal and state estate taxes?

There are a number of strategies you can employ to avoid federal and state estate taxes. Making gifts during your lifetime is one of those strategies. You can make an unlimited number of gifts up to $14,000 per person per year, without those gifts being taxed.

Additionally, if you are married, both a husband and wife can make $14,000 gifts per person. This means you can essentially make gifts of $28,000 to as many people as you want, tax-free, so long as the gifts are split between both spouses.

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