Transfer tax and foreign tax figures are among those that are adjusted annually for cost-of-living increases. Thomson Reuters Checkpoint has calculated these figures for the year 2021 using the chained Consumer Price Index from August 2020.
The annual gift tax exclusion will remain at $15,000 and the unified estate tax will rise to $11,700,000 or $23,400,000 per couple in 2021. This means that in 2021 any person can gift up to $15,000 to another person using the annual gift exclusion and without using any of their lifetime estate and gift exclusion. Married couples can gift up to $30,000.
Many other transfer tax related items have also been adjusted. For estates of decedents dying in 2021, the limit on the special use valuation has increased. The maximum decrease in value that can result from the use of special valuation has increased from $1,180,000 in 2020 to $1,190,000. In determining the portion of estate tax that can be deferred on a farm or closely-held business that is subject to interest at a rate of 2% a year, the tentative tax will be computed on $1,590,000 (increased from $1,570,000 in 2020) in addition to the applicable exclusion amount.
Under most circumstances, a married couple can gift with no limit to each other. However, gifts to noncitizen spouses are limited to $159,000 in 2021 (up from $157,000 in 2020).
A U.S. Citizen must report the aggregate value of foreign gifts they have received when this aggregate amount exceeds $100,000 – if the gift was received from a nonresident alien or a foreign estate. If the gift was received from a foreign corporation or partnership, the threshold will be $16,815 in 2021 (up from $16,649 in 2020).
If an individual has average annual net income tax of greater than $172,000 for the five tax years ending before they lose U.S. citizenship, they will be considered a covered expatriate. In 2020 this threshold was $171,000. Covered expatriate determination is important because when using a Mark to Market (MTM) election, all property of a covered expatriate is treated as sold on the day before the expatriation date for its fair market value. The amount that is includible in gross income under these MTM rules is reduced by $744,000 in 2021 (an increase from $737,000 in 2020).
Lastly, the foreign earned income and housing cost exclusions will both be adjusted as well. The foreign earned income exclusion amount will be $108,700, while the foreign housing cost exclusion will be $15,218 (increased from $107,600 and $15,064, respectively).
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Haley Braun, CPA