Exemption for Estate and Gift Tax Rises to $5,450,000 in 2016

Your Guide to State, Local, Federal, Estate + International Taxation

The IRS released the 2016 estate and gift tax amounts and due to the very low inflation rate, the 2016 numbers were very similar to the 2015 amounts.

In Revenue Procedure 2015-53, the IRS calculates the unified estate tax exclusion for decedents dying in 2016 and the gift tax lifetime exclusion will rise to $5,450,000. This is a very small increase of $20,000 from the 2015 amount of $5,430,000.

The gift tax annual exclusion remains at $14,000 for 2016. As in prior years, any person can gift up to $14,000 to another person in 2016 without using any of their lifetime exclusion. Married couples can gift up to $28,000 to any person in 2016. Payments for the benefit of an individual made directly to qualified educational organizations for tuition or for medical care expenses paid directly to providers are excluded from the gift computation.

Also coming in 2016 is a similar increase of the Generation-skipping Tax (GST) exclusion to $5,450,000 from the 2015 GST exemption amount of $5,430,000.

The ability to use a Deceased Spouse’s Unused Exclusion (often called DSUE or “portability”) continues to be available in 2016. The personal representative must timely file a Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return to claim this benefit. Form 706 is due within nine months of the decedent’s date of death. A six month extension is available.

Other changes in 2015:

  • The IRS announced that estate tax closing letters would no longer be automatically issued. Instead, the personal representative or executor must request it.
  • New tax basis reporting for assets received by beneficiaries of estates will begin in 2016.

Your Henry & Horne professional is available to answer any questions you have regarding your gift or estate planning.

By Melinda Nelson, CPA