As we begin our way through 2022, understanding various federal tax issues can help make the most of your estate planning this year. Because the federal legislature might pass regulations that alter these laws sometime during 2022, it’s important to understand critical federal tax laws you might want to utilize now. Before acting on any of these regulations, however, it’s often wise to speak with an attorney who is up to date with these changes and can make sure that you engage in actions that best benefit your situation.
# 1 – Lifetime Exclusion Amounts
Starting January 1, 2022, the amount of federal estate and gift tax exclusion in addition to the generation-skipping transfer tax has increased to $12,060,000 from $11,700,000. Remember, this amount is doubled for married couples. These threshold amounts are poised to decrease substantially at the beginning of 2026, though.
# 2 – Annual Exclusion Threshold
Beginning in 2022, the annual exclusion amount for federal gift tax increases to $16,000. This amount is also doubled to $32,000 for married couples. This is the amount that one person or a married couple can transfer each year to another person without using any lifetime gift tax exclusion or being forced to pay gift tax.
# 3 – No Changes to Estate and Trust Federal Tax Rates
In 2022, the greatest federal estate gift tax, as well as gift tax and generation-skipping transfer tax, is 40%. Meanwhile, the greatest federal income tax for trusts by non-grantors and estates is 37%. These tax rates apply to taxable income over $13,450 earned by either non-grantor trusts or estates during the administration period.
# 4 – Required Minimum Distributions
New charts utilized for deciding required minimum distributions for IRAs and qualified retirement plans became effective at the beginning of 2022. These changes impact traditional IRA owners who have reached the required starting date for receiving required minimum distributions as well as beneficiaries who receive certain retirement accounts.
# 5 – Step-Up in Basis
Following existing federal tax regulations, the income tax basis of real estate acquired from a deceased individual is often adjusted to the fair market value of the real estate at the date of the deceased individual’s death. Even though proposals in Congress exist to change this, the step-up in basis at the time of death is still effective in 2022.
# 6 – Portability for Federal Estate Tax
The ability to transfer a deceased individual’s unutilized federal estate tax exclusion amount to the deceased individual’s surviving spouse through the completion of a federal estate tax return is still effective in 2022. It’s worth considering the role of estate tax portability against the value of bypass trusts.