Inflation Adjusted Items for 2018
Many of the income tax provisions are adjusted for inflation each year. Some will be adjusted each and every year, while others have to reach a threshold in order to be adjusted. One of those items is the amount that each person can gift to people during the year without having to file a gift tax return. For the last five years, this amount has been stuck at $14,000. For 2018, it is now finally raised to $15,000.
I probably get more questions on this provision than about any other one so I thought I would share some of the key items:
- The $15,000 limitation is per donee not donor. For example, many people think you can only give away $15,000 total. The correct answer is you can give $15,000 to as many people as you want each year and they do not have to be related.
- Many others believe that once you go over the annual limit that you will owe gift tax. The correct answer is that when you go over the limit the excess amount simply reduces your lifetime annual exclusion amount. This amount was $5.49 million for 2017 and it will increase to $5.6 million for 2018. For example, assume a farmer gives land worth $500,000 to his daughter. The $15,000 annual exclusion would reduce the net “taxable” gift to $485,000. This amount then reduces his lifetime exclusion to $5,115,000. He still can give away $5,115,000 during lifetime and not owe any gift tax.
- A farm couple that is worth up to about $20 million and is in good health can easily over a 5-10 year period “give” away enough wealth to get them into an estate tax free zone by simply taking advantage of the $15,000 per donee amount each year (subject to certain state estate tax limitations).
Other inflation adjusted amounts of interest are as follows:
- Section 179 limit is raised to $520,000. Phase-out starts at $2,070,000.
- Section 2032A for reducing land values in an estate increases $1,140,000.
- Personal exemption increases to $4,150
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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