Federal Estate Tax Exemption Amounts – Moving to the Chained CPI

By Jeanne E. Murphy posted 03-26-2018 11:08


As most people know by now, the Tax Cuts and Jobs Act of 2017, Pub L No 115-97, 131 Stat 2054 (2017 TCJA) recently passed. The 2017 TCJA is a sweeping tax reform law that will change the tax landscape, encompassing significant changes related to corporate and individual income taxes and estate, gift, and generation-skipping transfer taxes. The TCJA doubles the base estate and gift tax exemption amount from $5 million to $10 million for estates of decedents dying, as well as gifts made, after December 31, 2017, and before January 1, 2026.

In addition to doubling the exemption amount, the TCJA changed the way the amounts are indexed for inflation. The TCJA modified IRC 1(f)(3) to use the chained consumer price index (C-CPI-U), replacing the standard consumer price index (CPI-U) for most inflation adjustments for tax years beginning after December 31, 2017. According to Lydia Austin of the Tax Policy Center, the chained CPI is a less generous measure of inflation than previously used. Most economists would argue that it is a more accurate measure of inflation. The effect of using the chained CPI is that it would adjust provisions, such as tax brackets and limits on some deductions and credits, more slowly upward than they would be adjusted under the CPI-U. Austin says that the result is, compared with prior law, that people will incur a greater tax liability from these provisions over time.

The new chained CPI inflation-adjusted numbers for 2018 were issued by the government at the beginning of March in Revenue Procedure 2018-18, IRB 2018-10. The estate and gift tax exemption amount for 2018 is $11.18 million ($22.36 million for married couples).