Page 311 - Small Business IRS Training Guides

Prior Tax Law

Unified Credit and the Basic Exclusion Amount

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 included several provisions

affecting the unified credit and basic exclusion amount:

1. A unified credit is available with respect to taxable transfers by gift and at death. (IRC § 2010) The unified credit

offsets tax, which is computed using the applicable estate and gift tax rates, on a specified amount of transfers,
referred to as the exclusion amount. The basic exclusion amount was set at $5 million for 2011 and is indexed for

inflation for later years.

2. By 2017, the inflation-indexed exclusion amount was $5.49 million. Exclusion used during life to offset taxable gifts

reduces the amount of exclusion that remains at death to offset the value of a decedent’s estate. An election

became available under which exclusion that is not used by a decedent may be used by the decedent’s surviving
spouse (this is known as “portability”).

3. The two taxes were computed using a common tax rate table with a top marginal tax rate of 35 percent.

The American Taxpayer Relief Act of 2012 made the $5 million exclusion (indexed for inflation) and portability permanent
as of 2013 at a 40 percent rate.

New Tax Provision

The Tax Cuts and Jobs Act (TCJA), signed December 22, 2017, doubled the basic exclusion amount for gift, estate, and
generation-skipping transfer (GST) taxes. (The latter tax (GST) is beyond the scope of this lesson.) The changes found in

TCJA are:

• The exclusion amount increased from what would have been $5.6 million per person in 2018, before the law
changed, to $11.18 million in 2018. This is the equivalent of $22.36 million total exclusion for married couples.
Under TCJA, the exclusion amount continues to be adjusted for inflation.

73233-102 11061-3 Tax Cuts and Jobs Act