December 7, 2020
Huck Bouma, P.C.
The Internal Revenue Service recently announced the 2021 Inflation Adjustments in Revenue Procedure 2020-45. By law, the dollar amounts for a variety of tax provisions are required to be revised each year to keep up with inflation. The result of this is that certain tax benefits are subject to inflation adjustments each year. However, since recent inflation factors have been minimal, many of these benefits will stay the same or change only slightly for 2021. Key provisions affecting 2021 estate, gift, and trust returns, filed by most taxpayers in early 2022, include the following:
• ADJUSTED - Estate and Trust Tax Rate Tables - for taxable years beginning in 2021 the 10% rate applies to income not over $2,650 and the maximum 37% rate applies to income over $13,050 with graduated rates in between.
• ADJUSTED - Valuation of Qualified Real Property in Decedent's Gross Estate - for an estate of a decedent dying in calendar year 2021, if the executor elects to use the special use valuation method under § 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use § 2032A for purposes of the estate tax cannot exceed $1,190,000. The 2020 amount was $1,180,000.
• ADJUSTED - Unified Credit Against Estate Tax - for an estate of any decedent dying during calendar year 2021, the basic exclusion amount is $11,700,000 for determining the amount of the unified credit against estate tax under § 2010. The 2020 amount was $11,580,000.
• UNADJUSTED – Annual gift exclusion - for calendar year 2021, the first $15,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.
• ADJUSTED – Annual gift exclusion for gifts to a spouse who is not a US Citizen - for calendar year 2021, the first $159,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 and § 2523(i)(2) made during that year. The 2020 amount was $157,000.
• ADJUSTED - Notice of Large Gifts Received from Foreign Persons - for taxable years beginning in 2021, recipients of gifts from certain foreign persons may be required to report these gifts under § 6039F if the aggregate value of gifts received in a taxable year exceeds $16,815. The 2020 amount was $16,649.
• ADJUSTED - Interest on a Certain Portion of the Estate Tax Payable in Installments - for an estate of a decedent dying in calendar year 2021, the dollar amount used to determine the "2-percent portion" (for purposes of calculating interest under § 6601(j)) is $1,590,000. The 2020 amount was $1,570,000.
• ADJUSTED - Net Investment Income Tax - for taxable years beginning in 2021, if a trust has undistributed Net Investment Income and also has adjusted gross income over $13,050 the investment income will be subject to the 3.8% Net Investment Income Tax. The 2020 adjusted gross income amount was $12,950.
• ADJUSTED – Maximum Capital Gains Rate - for taxable years beginning in 2021, the maximum zero amount of capital gains for an estate or trust is $2,700. The maximum 15% rate amount is $13,250.
Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.