The IRS regularly introduces modifications to tax laws, and understanding them and their potential aftermath is crucial. One of the critical IRS update for 2025 may impact estate planning, those who inherit, and the amount of taxes to be paid.
The IRS’s 2025 revenue proposals include raising the top income tax rate, taxing capital gains at death, eliminating the stepped-up basis for capital gains, limiting the annual gift exclusion, reducing the estate and gift tax exemption amount, and limiting the generation-skipping transfer (GST) tax exemption. Understanding these potential changes is vital to maintaining confidence in your estate planning strategy. Here’s what to monitor as the proposals may become law.
Increasing the top tax rate.
One of the crucial proposals is the plan to increase the top income tax rate from 37% to 39.6% for individuals earning more than $400,000 per year. This change alone could necessitate reviewing and possibly adjusting an individual’s current estate planning strategy.
Taxing unrealized capital gains at death.
The IRS proposal suggests taxing unrealized capital gains at death. Currently, unrealized capital gains – the appreciation of assets not sold before death – are not subject to income tax. The new proposal intends to tax these gains, potentially creating a significant liability for estates with substantial appreciated assets.
Likewise, under the current law, inherited property receives a “stepped-up basis,” allowing the heir to avoid capital gains tax on the property’s appreciation during the decedent’s lifetime. The 2025 proposal aims to eliminate this benefit, significantly impacting estate plans structured around this provision.
Gift tax changes
This critical IRS update proposes to limit the annual gift exclusion, currently set at $15,000 per recipient. A reduction in the exclusion amount would prompt a reevaluation of gifting strategies within estate plans.
Also proposed is reducing the estate and gift tax exemption amount from the current historically high level of $11.7 million per individual. This significant reduction could increase the estate tax liability of larger estates.
Last, the proposed changes include capping the generation-skipping transfer (GST) tax exemption, which addresses transfers made to skip a generation, such as grandparent-to-grandchild transfers.
In conclusion, while the critical IRS updates are still in the proposal stage, their potential for enactment is significant. The scope of these changes would require careful examination and likely revision of numerous estate plans. It’s essential to seek guidance from financial, legal, and tax professionals experienced in estate planning. To understand how these prospective changes may impact your wealth preservation strategy.
SWG3543903-0524c
Disclosure
The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
In addition, Wisemen and Associates specializes in providing strategies and guidance for those seeking a better retirement lifestyle. If you have five million dollars or $50,000 retirement savings, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!