The Internal Revenue Service recently released its annual inflation adjustments for more than 60 tax provisions, including the 2024 tax rate schedules and other rates, exemptions, and changes.
This was provided for in Revenue Procedure 2023-34, which can be found here.
If you are a U.S. citizen, a Green Card holder, or a Canadian snowbird who owns U.S. property or shares, you should know about the new U.S. estate tax exemption for 2024.
The basic exclusion amount for 2024 will be US$13.61 million, up from US$12.92 million in 2023. The maximum estate tax rate of 40% for estate taxable assets exceeding $1 million still applies for the 2024 tax year.
You should be aware that without U.S. congressional action, at the end of 2025, the federal estate tax exemption will be reduced to approximately US$7 million per individual pending final inflation adjustments due to a “sunset” provision in the Tax Cuts and Jobs Act that was passed under the Trump Administration in December 2017.
For typical snowbirds—Canadian persons who are not U.S. residents for income, gift, or estate tax purposes—a married couple who personally owns U.S. real property but does not have a joint worldwide estate of greater than US$27.22 million ($13.61 million exclusion amount multiplied by 2) for 2024, no U.S. estate tax exposure would exist at the death of the first spouse.
If the value of the personally held U.S. real property or shares exceeds US$60,000, a U.S. non-resident estate tax return (IRS Form 706NA) still must be filed. However, no estate tax would exist after applying the exemption and additional marital credit available under the Canada-U.S. Treaty. The processing of IRS Form 706NA and the request for an Estate Closing Letter takes 18 – 24+ months. Despite the fact that most Canadians who might have a U.S. estate tax filing requirement will ultimately owe no estate tax, the asset(s) that create the filing requirement will be frozen until the IRS provides the Estate Closing Letter. This can create a significant administrative burden for the estate and the beneficiaries.
Depending on the ultimate worldwide estate of the surviving spouse, though, additional planning to reduce or eliminate U.S. estate tax for the surviving spouse at death should be considered. We would encourage you to discuss this with your family or with our advisors at Cardinal Point to review planning opportunities.
The annual gift exclusion has been increased from US$17,000 to US$18,000 for 2024.
An annual gift from a U.S. citizen to their non-citizen spouse, increases to US$185,000 for 2024 from US$175,000.
The lifetime gift tax exclusion continues to be linked with the U.S. estate tax exemption. So, for 2024, that will be US$13.61 million. In 2024, annual gifts exceeding the annual exclusion of US$18,000 to anyone other than someone’s non-U.S. citizen spouse (US$185,000) will require filing a U.S. Gift Tax Return (IRS Form 709). The amount of the taxable gift will reduce the lifetime gift tax exclusion.
If you are a U.S. citizen or resident taxpayer living in Canada and who would qualify for the foreign earned income exclusion on their Canadian source employment income, the exclusion rises to US$126,500 for 2024 from US$120,000 in 2023.
For U.S. citizen or resident taxpayers, the U.S. marginal tax rates—10%, 12%, 22%, 24%, 32%, 35% and 37%–are the same in 2024. However, the taxable income thresholds have increased for 2024. A maximum tax rate of 37% is achieved for a single taxpayer when taxable income exceeds US$609,350. The taxable income amount exceeding US$731,200 for married filing joint taxpayers would trigger the 37% marginal rate.
Long-term capital gain tax rates of 0%, 15%, and 20% remain the same for 2024. However, the taxable income thresholds have increased for 2024.
The 3.8% Net Investment Income Tax (NIIT) threshold for U.S. citizen or resident taxpayers remains at US$250,000 for married filing joint taxpayers and US$200,000 for single taxpayers. Net investment income includes capital gains, dividends, taxable interest, rental and royalty income, passive income from investments you do not actively participate in, and the taxable portion of nonqualified annuity payments. If you are also a Canadian taxpayer but subject to this additional U.S. tax, CRA will not allow you to utilize this tax as a foreign tax credit.
The U.S. standard deduction, used by U.S. taxpayers who don’t itemize, rises to US$14,600 for singles and married persons filing separate returns and US$29,200 for married couples filing jointly. An additional $1,550 for each spouse over 65 (or blind) if married, or $1,950 if filing single or married separately would be included as part of the standard deduction amount.
Lastly, if you are entitled to participate in your U.S. employer’s 401(k) or 403(b) plan the 2024 elective deferral limit is US$23,000. If you are over the age of 50, then an additional $7,500 is available. The 403(b) additional catchup amount of $3,000 is available if you have 15+ years of service.