Tax Update: IRS Announces 2012 Inflation-Adjusted Estate and Gift Tax Terms


Good news.  RIA (a tax reporting service) just released the inflation-adjusted estate and gift tax terms for 2012, and the gift, estate and GST tax basic exclusions should all be going up from $5,000,000 to $5,120,000.  That’s an additional $120,000 of lifetime gifting or estate tax exemption available to clients starting January 1, 2012. 


Also, for US citizens with non-citizen spouses, the annual exclusion amount available to gift such spouses will increase from $136,000 to $139,000.  However, please note that the annual exclusion from gift tax (the amount any citizen or resident can give to anyone tax-free each year) will stay at the same level.  The annual gift tax exemption will be $13,000 again in 2012 as it was in 2011.


For a full report of the impact of inflation adjustments on estate and gift taxes, RIA reported:

Inflation-Adjusted 2012 Figures for Estate and Trust Tax Brackets and Other Transfer Tax Items

A number of tax figures are adjusted each year for inflation based on the average Consumer Price Index (CPI) for the 12-month period ending the previous August 31. The August 2011 CPI has been released by the Labor Department. (U.S. Department of Labor, Consumer Price Index (for all-urban consumers), 9/15/2011) Using the CPI for August 2011 (and the preceding 11 months), RIA calculated adjustments for 2012 to the estate and trust income tax rate schedule, and for transfer tax items.

Tax rate schedules. The tax rate schedules for 2012 will be as follows:


                       BRACKETS ARE:

If taxable income is:                 The tax is:

---------------------                 -----------

Not over $2,400                       15% of taxable income

Over $2,400 but not                   $360.00 plus 25% of the

  over $5,600                            excess over $2,400

Over $5,600 but not                   $1,160.00 plus 28% of the

  over $8,500                            excess over $5,600

Over $8,500 but not                   $1,972.00 plus 33% of the

  over $11,650                            excess over $8,500

Over $11,650                          $3,011.50 plus 35% of the

                                         excess over $11,650

Unified estate and gift tax exclusion amount. For gifts made and estates of decedents dying in 2012, the basic exclusion amount will be $5,120,000 (up from $5,000,000 for gifts made and estates of decedents dying in 2011).

Generation-skipping transfer (GST) tax exemption. The exemption from GST tax will be $5,120,000 for transfers in 2012 (up from $5,000,000 for transfers in 2011).

Gift tax annual exclusion. For gifts made in 2012, the gift tax annual exclusion will be $13,000 (same as for gifts made in 2011).

Special use valuation reduction limit. For estates of decedents dying in 2012, the limit on the decrease in value that can result from the use of special valuation will be $1,040,000 (up from $1,020,000 for 2011).

Determining 2% portion for interest on deferred estate tax. In determining the part of the estate tax that is deferred on a farm or closely-held business that is subject to interest at a rate of 2% a year, for decedents dying in 2012 the tentative tax will be computed on $1,390,000 (up from $1,360,000 for 2011) plus the applicable exclusion amount.

Increased annual exclusion for gifts to noncitizen spouses. For gifts made in 2012, the annual exclusion for gifts to noncitizen spouses will be $139,000 (up from $136,000 for 2011).

Reporting foreign gifts. If the value of the aggregate “foreign gifts” received by a U.S. person (other than an exempt Code Sec. 501(c) organization) exceeds a threshold amount, the U.S. person must report each “foreign gift” to IRS. ( Code Sec. 6039F(a) ) Different reporting thresholds apply for gifts received from (a) nonresident alien individuals or foreign estates, and (b) foreign partnerships or foreign corporations. For gifts from a nonresident alien individual or foreign estate, reporting is required only if the aggregate amount of gifts from that person exceeds $100,000 during the tax year. For gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $14,723 in 2012 (up from $14,375 for 2011).

Kiddie tax. The exemption from the kiddie tax for 2012 will be $1,900 (same as for 2011). A parent will be able to elect to include a child's income on the parent's return for 2012 if the child's income is more than $950 and less than $9,500 (same as for 2011).

AMT exemption for child subject to kiddie tax. The AMT exemption for 2012 for a child subject to the kiddie tax will be the lesser of (1) $6,950 (up from $6,800 for 2011) plus the child's earned income, or (2) $33,750 (down from $48,450 for 2011).

Source: RIA – Checkpoint tax services by Reuters.