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Portability of Unused Estate Tax Exclusion
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Article Highlights:Estate TaxLifetime ExemptionSurviving SpousePortability ElectionFinancial DrawbackElection ConsiderationsPortability ExtensionWhen an individual dies, the value of that individual’s estate is subject to estate taxation, which is currently 40% of the individual’s taxable estate. However, there is a lifetime exclusion (exemption) to the estate tax, which for 2022 is $12.06 million. The lifetime exclusion can also be used to offset taxable gifts – those that exceed the annual gift tax exclusion. This means for someone dying in 2022 who hasn’t previously dipped into their lifetime exclusion to offset gift tax, the first $12.06 million of the individual’s estate is exempt from estate tax and passes tax-free to the individual’s beneficiaries. This lifetime exclusion amount is annually adjusted for inflation and is also subject to the whims of Congress. The table below illustrates the exclusion amounts for recent years.Lifetime Estate Tax ExclusionYearAmount2019$11.40 Million2020$11.58 Million2021$11.70 Million2022$12.06 MillionIn the case of married taxpayers, each spouse has a separate lifetime exclusion equal to the $12.06 million (for 2022).Example – Looking at a simplistic situation, let’s say a married couple, Ben and Sylvia, have a joint estate valued at $15 million in 2020 when Ben passed away. He had not made any taxable gifts during his lifetime. Ben’s estate subject to estate tax was $7.5 million (half of the $15 million). In 2020, the estate and gift tax exemption amount was $11.58 million; thus Ben’s estate subject to tax is zero ($7.5 million less $11.58 million). Sylvia is Ben’s sole beneficiary, so she inherits his $7.5 million estate, which combined with her $7.5 million brings her estate total to $15 million (and for this example doesn’t increase or decrease over the coming years). Sylvia passes away in 2022 when the estate tax exemption is $12.06 million. Sylvia’s taxable estate is $2.94 million ($15 million less $12.06 million), resulting in an estate tax of $1,121,800 (based on the estate tax rate schedule which is $345,800 on the first $1 million and 40% of the balance).However, married taxpayers have a special benefit that allows a surviving spouse to make what is called a portability election. The portability election essentially allows the surviving spouse to add the deceased spouse’s unused estate tax exclusion to their own. During the surviving spouse’s remaining lifetime, the exclusion can be used to offset taxable gifts and whatever isn’t used that way is available to reduce the surviving spouse’s estate tax upon his or her death.Example – Using the previous example, when Ben passed in 2020, the estate tax exclusion was $11.58 million, and his estate was $7.5 million. Thus, his unused estate tax exclusion was $4.08 million ($11.58 million – $7.5 million). Sylvia made no taxable gifts since Ben’s death. Had the portability election been made, which required filing an estate tax return for Ben’s estate, Sylvia’s estate tax exclusion in 2022 would have been $16.14 million ($4.08 million + $12.06 million). Thus, none of Sylvia’s $15 million estate would have been taxed since the exclusion of $16.14 million exceeded the value of her estate. The resulting tax savings is $1,121,800.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
