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IRS Releases 2021 Inflation Adjustments

Revenue Procedure 2020-45 provides updates for more than 60 tax provisions.

The Internal Revenue Service has released Rev. Proc. 2020-45 with annual inflation adjustments for 2021.

Some notable highlights include:

  • The basic applicable exclusion amount (and generation-skipping tax exemption) will be $11.7 million, up from $11.580 million for decedents dying in calendar year 2021.
  • The annual gift tax exclusion amount remains $15,000.
  • The annual gift tax exclusion for a noncitizen spouse will be $159,000, up from $157,000.
  • The standard deduction will increase to $25,100 for married individuals filing jointly, up $300 from the previous year; to $12,550 (up $150) for single taxpayers and married individuals filing separately; and to $18,800 (up $150) for heads of household.
  • The top tax rate will remain 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly).
  • There is once again no personal exemption for 2021. The personal exemption amount remains zero under the Tax Cuts and Jobs Act (TCJA). 
  • There’s once again no limitation on itemized deductions, as that limitation was eliminated by the TCJA.
  • Under the TCJA, children under age 19 and college students under age 24 must pay taxes on unearned income (kiddie tax). For 2021, the standard deduction for unearned income subject to the kiddie tax is $1,100.
  • The top (37%) income tax bracket for estates and trusts will begin at $13,051, up from $12,950.
  • The alternative minimum tax exemption for estates and trusts, adjusted for inflation, will be $25,700, up from $25,400, and the phaseout of the exemption will start at $85,650, up from $84,800.
  • The foreign earned income exclusion amount is $108,700.
  • The qualified business income threshold under Internal Revenue Code Section 199A will increase to $329,800 for married individuals filing joint returns and to $164,925 for married individuals filing separate returns, and to $164,900 for single individuals and heads of household.
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