What You Need to Know
- The provision is now part of H.R. 5376, which could come to the House floor this week.
- A temporary doubling of the estate tax exemption is currently set to expire in 2026.
- Heirs paid $9.4 billion in estate taxes in 2016, according to the Joint Committee on Taxation.
The House of Representatives is getting closer to voting on a huge package of budget legislation that could lead to many federal benefits program and tax changes — including a 50% cut in the “basic exclusion amount” that determines which estates pay the federal estate tax.
House leaders have posted a collection of eight big PDF files related to the budget reconciliation process, with the bill number H.R. 5376, on their list of “Bills to Be Considered on the House Floor” this week.
The House has described H.R. 5376 as an item that “may be considered pursuant to a rule.”
The House Rules Committee sets the rules for House floor debate. At press time, the committee had not yet scheduled a meeting for H.R. 5376.
The Estate Tax Provision
The current version of H.R. 5376 is based on a package approved on Saturday by the House Budget Committee, which, in return, was based on a package approved by the House Ways and Means Committee earlier this month.
In H.R. 5376, the estate tax provision in the version of the package now heading toward the House floor is in Section 138207, which is on page 265 of the eighth PDF file posted on the House “to be considered this week” site.
The Tax Cuts and Jobs Act of 2017 includes a “unified credit” tax provision that temporarily set the “basic exclusion amount,” or the amount exempt from estate taxes when a wealthy individual dies, at $10 million. Inflation indexing has increased the actual basic exclusion amount to $11.7 million for 2021, according to a congressional summary of the provision, which starts on page 287 of the third PDF file posted on the site.
Under current law, the unadjusted basic exclusion amount is on track to snap back to $5 million after Dec. 31, 2025.
The Section 138207 tax provision, which is just eight lines long, would replace the current unified credit section given in Section 2010(c)(3) of the Internal Revenue Code with a new section stating, “The amendment made by this section shall apply to estates of decedents dying and gifts made after December 31, 2021.”
The tax rate for affected wealth transfers would be 40%, according to the provision summary.
The effect of the change would be to reduce the basic exclusion amount for estate tax purposes to $6.02 million for 2022.
The provision would also affect the taxation of gifts.
The Potential Impact
In a report the congressional Joint Committee on Taxation prepared in May, committee analysts showed, based on Internal Revenue Service data, that the United States received 7,871 returns for 2016 for estates with a gross value ranging from $5 million to $10 million, and 4,393 returns for estates with more than $10 million in value.