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Will Gifts Now Using the Temporarily Increased Gift-Estate Exclusion Harm Estates after 2025?

Article Highlights:

  • Annual Gift Exclusion 
  • Unified Gift-Estate Exclusion 
  • Tax Reform’s Temporary Exclusion Increase 
  • Taxpayer-Friendly Regulations
Individuals with large estates generally want to gift portions of their estate to beneficiaries while they are still living, to avoid or lessen the estate tax when they pass away. That can be done through annual gifts (up to the inflation-adjusted annual limit for each gift recipient each year – $15,000 for 2019) and/or by utilizing the unified gift-estate exclusion for gifts in excess of the annual exclusion amount. The tax reform virtually doubled the unified gift-estate exclusion for years 2018 through 2025, after which – unless further extended by Congress – it will return to its inflation-adjusted former amount. This has caused concerns related to what the tax consequences will be for post-2025 estates if the decedent, while alive, had made gifts during the 2018-through-2025 period utilizing the higher unified gift-estate exclusion. Would that cause a claw back due to the reduced exclusion?

The Treasury Department has proposed taxpayer-friendly regulations to implement changes made by the tax reform, the 2017 Tax Cuts and Jobs Act (TCJA). As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level for those gifts once the exclusion decreases after 2025.

In general, gift and estate taxes are calculated using a unified rate schedule on taxable transfers of money, property, and other assets. Any tax due is determined after applying a credit based on an applicable exclusion amount.

The applicable exclusion amount is the sum of the basic exclusion amount established in the statute plus other elements (if applicable) described in the proposed regulations. The credit is first used during life to offset gift tax, and any remaining credit is available to reduce or eliminate estate tax.

The TCJA temporarily increased the basic exclusion amount from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2018, the inflation-adjusted basic exclusion amount is $11.18 million; for 2019, it is $11.4 million. In 2026, the basic exclusion amount will revert to the 2017 level of $5 million, adjusted for inflation.

To address concerns that an estate tax could apply to gifts exempt from gift tax through the increased basic exclusion amount, the proposed regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the basic exclusion amount applicable to gifts made during life or the basic exclusion amount applicable on the date of death.

If you have any questions related to gifting and estate planning, please give this office a call.

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Offices in Flemington, NJ and Califon, NJ

Our Mission: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we are on a mission to redefine the tax experience for individuals and small businesses. With a focus on personalized service, strategic planning, and expert guidance, we aim to empower our clients to succeed financially with confidence and ease.

Expertise in Action: With a wealth of experience and a team of dedicated professionals, we specialize in individual and small business tax preparation. While we excel in all areas of taxation, our passion lies in serving the unique needs of small business owners in New Jersey. We understand that small business taxation requires specialized knowledge and attention to detail, which is why we go above and beyond to ensure our clients receive the guidance and support they deserve.

Tailored Solutions for Every Client: Whether you're a high-net-worth individual seeking comprehensive tax planning or a small business owner in need of accounting and bookkeeping assistance, we have the expertise to meet your needs. Our team takes the time to understand your specific situation and develop customized solutions that align with your goals and objectives.

Why Choose Us?: What sets us apart from other New Jersey tax firms is our commitment to excellence and innovation in the field of taxation. We don't just prepare tax returns; we provide strategic insights, proactive planning, and actionable advice to help our clients achieve their financial goals. With a team of two CPAs, an EA, and an ERO, we have the expertise and resources to deliver exceptional service and results.

Your Success is Our Priority: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we measure our success by the success of our clients. We are dedicated to building long-lasting relationships, providing unparalleled service, and helping our clients thrive in today's ever-changing tax landscape.

We can't wait for you to experience the Prestige Accounting Services Group (previously Prestige Wealth Accounting Group) difference.

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