It’s my annual Taxes from A to Z series! This time, it’s Tax Cuts and Jobs Act (TCJA) style. If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss under the new law, you won’t want to miss a single letter.
G is for Gross Estate.
The word estate sounds fancy, but it’s quite simple. It’s not just a word to describe a giant house on a hill but is a term for all of the property owned by a person at his or her death. (Okay, it’s simple and kind of grim.)
For federal tax purposes, gross estate includes all property you own at your death, including an interest in property. That includes the things you’d expect like bank accounts and stocks, but also things you might not expect like transfers made during your lifetime without adequate and full consideration (typically, another way of saying gifts). And while it seems logical that the feds would consider your real property inside the country as part of your gross estate, the term also includes your real property outside of the United States.
Your gross estate also includes annuities, some community property, joint assets with right of survivorship, and property over which you possessed a general power of appointment at death (think of that as the right to control where property goes even if you don’t own the property). It also includes some life insurance proceeds, even if they are payable to beneficiaries other than the estate.
If, when you add all of the assets inside the gross estate of a U.S. citizen or resident, and the amount, plus the gift tax specific exemption and any adjustment for taxable gifts, is higher than the federal estate tax exemption, the executor of the estate must file a form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (downloads as a PDF). That’s generally true even if no tax is due (some exceptions apply to transfers between spouses).
The gift tax specific exemption refers to the amount allowed for gifts made by the decedent between September 9, 1976, and December 31, 1976. Any adjustment for taxable gifts refers to taxable gifts made after December 31, 1976.
So how much is the federal estate tax exemption? Under the TCJA, the exemption changed quite a bit. In 2017 – pre-TCJA – the federal estate tax exemption was $5,490,000 per person ($10,980,000 for a married couple). That increased to $11,180,000 per person ($22,360,000 for a married couple) in 2018 and $11,400,000 per person ($22,800,000 for a married couple) in 2019. The limits are adjusted each year for inflation.
The federal estate tax exemption generally applies to citizens and residents, but nonresidents may have to file a return, too. An executor must file a form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return Estate of nonresident not a citizen of the United States (downloads as a PDF) if the amount of a nonresident decedent’s assets situated in the United States (such as real estate) plus the gift tax specific exemption and any adjustment for taxable gifts is more than $60,000.
If an executor is required to file a form 706, he or she must file and pay any tax due within nine months after the date of death. An automatic 6-month extension of time to file (but not to pay) is available if more time is needed; use form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes (downloads as a PDF).
For more Taxes From A To ZTM 2019, check out the rest of the series: