Changes in the income tax for 2018 will affect many of our clients. Here are the limits the estate and gift tax numbers for 2018:
- The annual gift tax exclusion is $15,000
- The Federal Estate tax exemption is $11,200,000
- The Maryland Estate tax exemption is $4,000,000
The $15,000 limit is the amount you can give to any person without filing a gift tax return. The gift tax return generates no tax, but comes out of your lifetime Federal lifetime exemption. The Federal Estate tax exemption is now twice $5,000,000 indexed for inflation since 2009. The change in the law affected very few families as only .2% of estates were filing estate tax returns under the $5,000,000 exemption. What did not change is the step up in basis upon death. Holding assets until death and getting appraisals for fair market value is still the primary way to avoid capital gains taxes. The tax rates for capital gains are unchanged for 2018. For gains on the sale of a home, the holding period for $250,000 single/$500,000 married increased from 2 out of the last 5 years to 5 out of the last 8 years. This change could affect a substantial number of taxpayers especially applicable to those downsizing and moving after a couple of years at the new location.
At the state level you can expect to see a bill freezing the Maryland tax exemption at $4,000,000 rather than increase to the Federal estate tax exemption amount as scheduled in 2019. The doubling of the Federal estate tax exemption was not foreseen when the Maryland legislators voted to gradually increase the Maryland estate tax exemption. There will be an interesting debate on this bill and all Maryland tax bills this year. Maryland will see a bump in revenues as the reduction of deductions on the Federal return will carry over to the state tax return. However, the reduction in Federal tax rates is likely to reduce the amount of money flowing from the Federal to State coffers. As an example, there is a real possibility that Federal funds for Medicaid funding of Nursing home expenses could be cut putting pressure on the state to come up with funds to maintain the Medical Assistance program.