Estate Tax Savings Opportunity: Estates Have Five Years to Make Portability Election

Estate tax portability is the capability of a first spouse to die to transfer, or port, his* unused estate tax exemption to a surviving spouse. Every person has a certain amount of assets he can pass on to heirs without incurring estate tax.

This amount is called the estate tax exemption, which in 2022 is $12.06 million. Prior to allowing an individual to pass unused estate tax exemption to his spouse, each spouse, at the time of his or her death, had to use his own exemption, and it could not be shared with the spouse. This created problems, since both spouses would then be required to have assets in their own names and careful planning had to be done in order to utilize the exemption. 

In 2013, Congress attempted to minimize the problem by creating estate tax portability. Under portability rules, when the first spouse passes, his estate can elect portability by filing an estate tax return within nine months of death (15 months if an extension was filed). For example, if a person passes away in 2022, an estate tax return would be filed for portability purposes and a $12.06 million estate tax exemption would be transferred to the surviving spouse. The transferred estate tax exemption is added to the amount the surviving spouse already has, which would be an additional $12.06 million, providing the surviving spouse with a total of $24.06 million in estate tax-free transfers. 

Without this election, the surviving spouse would have only her own individual $12.06 million exemption, thereby effectively wasting the deceased spouse’s exemption and causing potentially significant estate tax to be incurred at the surviving spouse’s death. Many taxpayers didn’t realize they needed to file an estate tax return to make this election; therefore, they missed the election and requested exceptions.  Because the IRS had so many requests for exceptions, in 2017, the IRS extended the deadline to two years from the date of the spouse’s death.  As taxpayers continued to miss this election, however, in July 2022 the IRS extended the timeframe to file an estate tax return for portability purposes to five years. Rev. Proc. 2022-32 outlines the requirements for compliance. Most importantly, the deceased spouse would otherwise have not been required to file an estate tax return under Internal Revenue Code Section 6018(a). 

Considering the estate tax exemption is slated to drop to approximately $6 million in 2026, many more taxpayers will be subject to estate tax, and the extended timeframe to make the portability election creates a significant estate tax savings opportunity. 

If you think your family may benefit from filing an estate tax return to ensure maximum estate tax savings, please reach out to Laura DelFratte, a director on our Estates and Trust team, to discuss the available tax savings. 

Telephone: 412-697-5686, Email: [email protected]

*The first spouse to die is referred to as a male in this article because, statistically speaking, that’s the more likely scenario. 

About Schneider Downs Tax Services

Schneider Downs’ tax advisors have experience and expertise in a wide range of industries, including Automotive, Construction, Real Estate, Manufacturing, Energy & Resources, Higher Education, Not-for-profits, Transportation and others. Our industry knowledge and focus ensure the delivery of technical tax strategies that can be implemented as practical business initiatives.  

To learn more, visit our dedicated Tax Services page. 

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Estate Tax Savings Opportunity: Estates Have Five Years to Make Portability Election
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