Various dollar figures related to international tax are adjusted annually for cost-of-living increases. These adjustments reflect a measure of inflation that was revised by the Tax Cuts and Jobs Act (TCJA) called the average “chained Consumer Price Index (CPI) for all-urban customers.” The adjustments are for the 12-month period ending the previous August 31. Using the chained CPI for August 2019 (and the preceding 11 months), professional publishers have calculated the 2019 indexed amounts.
Please note that, like most relatively recent legislation, the TCJA contains errors and ambiguities that have yet to be addressed in a comprehensive technical corrections bill. Where these issues arose in the context of inflation adjustments, professional publishers construed provisions in the way that seemed the most consistent with congressional intent, reflecting the assumption that these ambiguities will eventually be resolved accordingly. It’s nonetheless possible that there may be instances in which the IRS may interpret the statute differently. Here are some of the pertinent adjustments:
Annual exclusion for gifts to noncitizen spouses. For gifts made in 2020, the regular gift tax annual exclusion will be $15,000 (same as 2019). For gifts to noncitizen spouses in 2020, however, the annual exclusion will be $157,000 (up from $155,000 for 2019).
Foreign earned income and housing cost exclusion. The foreign earned income exclusion amount will be $107,600 in 2020 (up from $105,900 in 2019). The foreign housing cost exclusion will be $15,064 in 2020 (up from $14,826 in 2019).
Reporting of foreign gifts. If the value of the aggregate “foreign gifts” received by a U.S. person exceeds a threshold amount, the individual must report each “foreign gift” to the IRS. Note: This doesn’t apply to an organization exempt under Internal Revenue Code Section 501(c). Different reporting thresholds apply for gifts received from:
- Nonresident alien individuals or foreign estates, and
- Foreign partnerships or foreign corporations.
For gifts from a nonresident alien individual or foreign estate, reporting is required only if the aggregate amount of gifts from that person exceeds $100,000 during the tax year. For gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $16,649 in 2020 (up from $16,388 for 2019).
Expatriation. For 2020, an individual with “average annual net income tax” of more than $171,000 (up from $168,000 for 2019) for the five tax years ending before the date of the loss of U.S. citizenship will be a covered expatriate. Under a mark-to-market deemed sale rule, all property of a covered expatriate is treated as sold on the day before the expatriation date for its fair market value. However, for 2020, the amount that would otherwise be includable in the gross income of any individual under these mark-to-market rules will be reduced by $737,000 (up from $725,000 for 2019).
In an apparent drafting omission, Sec. 877(a)(2)(A) wasn’t amended under the TCJA to reflect the corresponding change that the TCJA made to Sec. 1(f)(3). In other words, Sec. 877(a)(2) states that the relevant base year of 2003 should be substituted for 1992, but 1992 no longer appears in Sec. 1(f)(3).
Instead, 2016 is the base year contained in the current version of the statute. The calculations shown above reflect a presumption that the 2003 base year should be substituted for 2016. The IRS followed this presumption when it determined the 2019 inflation-adjusted numbers in Revenue Procedure 2018-57, 2018-49 IRB 827.
If you have questions or concerns about whether or how any of these adjustments might affect your tax return, contact your Elliott Davis Advisor.