The Small Business Legislative Council reported on February 13 that two completely opposite estate tax bills were introduced in the U.S. Senate.
On January 31, 2019, Senator Bernie Sanders introduced the For the 99.8 Percent Act (S. 309) “to amend the Internal Revenue Code of 1986 to reinstate estate and generation-skipping taxes, and for other purposes.”
In case you were wondering if the estate tax and generation-skipping transfer tax or generation-skipping tax (GST tax) are alive and well despite the listed purpose of this bill - the answer is yes. The imposition of these taxes is not as frequent as it was prior to the Tax Cuts and Jobs Act of 2017 (the major tax reform bill that passed at the end of 2017). This law doubled the prior estate tax exemption starting in 2018. Today the estate tax and GST exemption is $11,400,000 per person ($22,800,000 per couple) and this amount increases with a COLA. Unfortunately, this provision doubling the estate and GST exemption is scheduled to expire on December 31, 2025.
Meanwhile, on January 24, 2019, the Republican leadership in the Senate introduced the Death Tax Repeal Act of 2019 (S. 215) to repeal estate taxes outright. This seven-page bill would repeal federal estate and GST taxes, but would retain a gift tax on major gifts. This legislation would not affect the step-up in basis that assets receive when they go through an estate. This is a relief as some prior proposals have sought to trade an elimination of the estate tax for an elimination of the step-up in basis. The SBLC is on record as strongly opposing any proposal which would reduce or eliminate the step-up in basis on assets going through an estate. As we have discussed in our prior alerts, such an elimination of the step-up would trigger a massive capital gains tax on all income groups throughout the country and hit far more taxpayers than the estate tax. This bill currently has 28 co-sponsors – all Republicans. Similar to S. 309, this bill is unlikely to become law any time soon.
Even though neither bill is likely to become law, many small business owners who have assets below or at the current federal estate tax exemption ($11,400,000 per individual, $22,800,000 for a couple) but above the exemption if the doubled provision is not extended and allowed to expire (approximately $5,800,000 per individual, 11,600,000 per couple, in 2026) may want to consult with advisors to determine if there are ways to preserve the higher estate tax and GST tax exemption today. Even though many tax practitioners believe that their clients will have until at least the end of 2025 to take steps to preserve the higher exemption amount, this may not be the case if the country elects a Democratic majority in the Senate and House and a Democrat for President in 2020. In short, owners may want to be taking steps this year to preserve the benefits of the higher estate tax exemption amount if the tea leaves look for a takeover by the Democrats in 2020.
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