The IRS has raised the estate and gift tax exemption for 2017, from the previous limit of $5.45 million to $5.49 million. This is in addition to annual gift exemptions and exemptions that apply to state taxes.
Federal gift tax exemption
The federal gift tax exemption is the amount that an individual can leave, over a lifetime, to heirs without paying gift taxes. The amount can be doubled for married couples, allowing them to leave $10.98 million protected from taxes. The exemption is not as simple as it seems, however. For example, for a spouse to use a portion of the other spouse’s unused exemption, they must carefully coordinate with estate taxes.
The federal gift tax exemption applies to the gifting of any property – which can include money, the use of a property, or even a reduced-interest loan. The rules can be tricky to understand, so it is best to consult with a tax law professional with a grasp of how the laws apply and intersect.
Annual gifts: state gift and estate taxes
The estate and gift exemption is different from the annual gift tax exclusion, which remains at $14,000. The gift tax is a tax on to the gift-giver while the inheritance tax is on the recipient.
There is no limit to how many people someone may give up to $14,000 each year without paying taxes on it or having it count against the lifetime gift exemption.
In addition, the states have their own gift tax rules that operate in addition to federal taxes. Some states implement an estate tax and some an inheritance tax. Maryland and New Jersey are the only states to impose both. A 2014 change to the Maryland law implements a graduated increase to the estate tax exemption to ultimately match the federal exemption. The 2014 Maryland estate tax exemption was $1 million and increased to $1.5 million in 2015, $2 million in 2016, and will increase to $3 million in 2017, to $4 million in 2018, and will go up to $5.9 million in 2019. Most other states have already abolished their estate taxes or have restricted them in recent years.
The Maryland inheritance tax can apply regardless of whether the estate was taxed. Maryland imposes an inheritance tax on the value of property passing under a will, state intestacy laws, or under a trust, deed, or joint ownership. The rate is 10% and is only assessed when the beneficiary is the decedent’s spouse, child (or the child’s spouse or child), parent, or sibling. Other friends or relatives would inherit subject to the tax.
Making gifts in Maryland
Making a gift in Maryland, therefore, can trigger potential taxes at both the state and federal level, to be paid by either the giver or the recipient. Before making a large gift, consult with a Maryland business lawyer to make sure you understand the tax implications and reporting duties you or your recipients face and how exemptions may affect the gift.
Rosenberg Martin Greenberg are Maryland tax lawyers with expertise in state and federal tax matters. We counsel individuals, businesses, and estates in tax planning and litigation matters. For counsel on a tax matter, contact us today.
- Forbes, IRS Announces 2017 Estate And Gift Tax Limits: The $11 Million Tax Break, http://www.forbes.com/sites/ashleaebeling/2016/10/25/irs-announces-2017-estate-and-gift-tax-limits-the-11-million-tax-break/#5ab387ff43fa
- Comptroller of Maryland, Estate and Inheritance Tax Information, http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Estate_and_Inheritance_Tax/Tax_Information/
- IRS, Gift Tax, https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax