Revised U.S. Estate/Gift Tax Exclusions

The December 2017 Tax Cuts and Jobs Act doubled the lifetime exclusion to $11.18M effective for 2018 to 2025, subject to inflation adjustments for subsequent years. The unified tax credit relating to the 2018 exclusion is $4,417,800. For 2019, the exclusion amount is expected to be $11.4M with a unified credit of $4,505,800.

After 2025, the foregoing may or may not be approved by Congress to be of a permanent nature. If it is not approved, the thresholds will revert to the pre-existing inflation-adjusted amount. 

Taxable gifts made during one’s lifetime are subject to the same graduated tax rates as estate tax. The 2018 $11.18M (2019-$11.4M) lifetime gift tax exclusion/estate tax exclusion is available to U.S. citizens, U.S. domiciliaries and green card holders. Post-1976 taxable gifts are included in the gross estate and credit is given for gift tax previously paid.

For years 2015 to 2017, the first $14,000 of gifts of a present interest annually made by a donor to each non-spouse donee, are not included as taxable gifts. For 2018 and 2019, this annual exclusion rises to $15,000. If the recipient spouse is not a U.S. citizen, the annual exclusion is $152,000 for 2018, expected to rise to $155,000  for 2019. Where the recipient spouse is a U.S. citizen, the entire gift is non-taxable.

If the value of the gift is above for foregoing noted annual exclusion, then one has to compute the gift tax using the estate/gift tax rate table, that rises to a 40% tax rate at the $1M mark. As the unified tax credit is for both the incidence of estate and gift tax,  the present $11.18M (2018) lifetime exclusion may apply to  U.S. citizen donors.

Although for U.S. purposes, this lifetime exclusion, say to gift significant amounts is very attractive, at least to 2025, for those U.S. citizen donors  that reside in Canada, the gifting of appreciable assets will create immediate  income taxation here if the transfer is not to their spouse because a gift in Canada is a disposition for income tax purposes. In Canada, proceeds of disposition for spousal gifts are deemed to be the donor’s tax basis in the asset transferred, unless an election is made for the proceeds to be at fair market value. Canada will not give a foreign tax credit for U.S. gift tax because it is not an income tax.

One should review transfers to non-spouse recipients before any transfer is contemplated if the U.S. citizen is not residing in the United States to avoid potential tax exposure in their country of residence. The appropriate Tax Treaty should be examined for any relief.