Those living in North Carolina or any other state have the right to gift up to $11.18 million without any estate tax implication. The exemption amount was increased from around $5 million as per the Tax Cuts and Jobs Act (TCJA). However, the exemption is planned to return to the old limit when 2025 comes to an end. Therefore, it is important to consider how to take advantage of the new rule while anticipating a potential clawback in 2026.
If money were to be clawed back when the exemption limit goes down, individuals and families could be subject to a 40 percent tax rate. The tax would theoretically be assessed on amounts gifted in excess of the old exemption limit. However, the IRS and Treasury have proposed a rule that would protect gifts made between now and the end of 2025. That rule is undergoing a public comment period.
Whether a person should make a gift depends on the size of an estate. If a person has less than $5 million in assets, it might not make sense to give any of it away. Furthermore, those who want beneficiaries to enjoy a step up in basis won’t want to gift an asset. Instead, it would be a better move to transfer the asset upon the current owner’s death.
Making gifts while still alive may minimize the federal estate tax bill that may be owed after a person passes away. An attorney may be able to provide guidance as to which assets may be best to give away. It may also be beneficial to work with an accountant or other professionals to determine a plan to make gifts. This may make it easier to do so in accordance with potentially changing tax laws.