Estate Tax Portability Update

Estate Tax Portability Update

Authored by Haynie & Company Senior Tax Manager Greg Ward, CPA

Estate tax is not an annual concern for most taxpayers. However, without adequate planning the transfer of wealth from one generation to another can present complex obstacles and large tax burdens. Each individual has a lifetime gift and estate tax exemption of $12,060,000 for taxpayers passing away in 2022. That amount is indexed to inflation each year. The combined value of all lifetime gifts and assets transferred as part of your estate can rise to this level without incurring any estate tax.

What is Portability

For married couples, one spouse’s unused portion of the $12,060,000 can be transferred to the surviving spouse for reporting on their estate return. This is a filing election known as portability. Taxpayers filing for this reason do not have to file an estate return on Form 706, but their representatives are voluntarily doing so in order to secure the unused exemption benefit for their spouse.

July 2022 Update

Until recently, all estate returns had to be filed within 9 months of the date of death, with an allotment for a 6-month extension. However, July 2022 relief announced by the IRS now permits the filing of portability estate returns within five years of the date of death. This relief only applies to voluntary portability filings. This announcement comes at an important juncture, considering the significant recent appreciation in real estate holdings. These value gains could put many taxpayers in the range of reporting taxable estate amounts above and beyond $12,060,000 for each individual.

Given the ever-present threat that estate exemptions and benefits could be reduced or eliminated, this portability filing window is a great opportunity to lock in exemption amounts at their current levels. Consult with your tax advisor to ensure that you have a plan to deal with estate tax, especially if it may involve portability.

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