Changes to D.C. and Maryland Estate Tax Exemptions for 2018 and Beyond

Recently, two jurisdictions—Maryland and the District of Columbia—saw increases in their respective estate tax exemptions for 2018. The increases, however, appear to be short-lived, as Maryland has now cut its exemption, with D.C. far along in the process to do the same.

D.C. Estate Tax

As a result of legislation enacted in 2015 and D.C. revenues in 2017 exceeding the target set for relaxation of its estate tax, the D.C. estate tax exclusion for 2018 and future years was increased to match the federal exclusion amount.¹ As a result, the D.C. estate tax exclusion jumped from $2 million in 2017 to $11.18 million starting Jan. 1, 2018. This is the highest that the D.C. estate tax exemption has been.

In what’s potentially a major turn of events that could affect D.C. residents and those dying with property located in D.C., the Council of the District of Columbia announced that it will seek to reduce the newly increased amount by 50 percent. Apparently, the increase in the federal exemption took the Council by surprise, and in response, on Feb. 6, 2018, 10 of the 13 Council members joined in a bill to retroactively change the D.C. estate tax exclusion to $5.6 million for 2018 (to be adjusted for inflation in future years).²

Maryland Estate Tax

For individuals dying in 2018, the Maryland estate tax exemption is $4 million , which is a $1 million increase from the 2017 Maryland estate tax exemption. The Maryland increase is part of a 2014 law that gradually increases the Maryland estate tax exemption each year until 2019, when it was scheduled to match the federal basic exclusion amount. Under the 2014 law, the Maryland estate tax exemption was scheduled to automatically jump from $4 million in 2018 to approximately $11.4 million³ starting Jan. 1, 2019.⁴

However, Maryland recently enacted new changes to decouple from the federal exclusion amount and limit the Maryland estate tax exclusion to $5 million in 2019 (with no adjustment for inflation in future years) and to allow transferability of a deceased spouse’s unused Maryland estate tax exclusion to a surviving spouse (so-called “portability”).⁵ By comparison to the D.C. proposal, Maryland’s change doesn’t involve any element of retroactivity and takes effect as of July 1, 2018.

Therefore, in 2019, the Maryland estate tax exclusion amount will be limited to $5 million!

No Estate Tax in Virginia and Florida

As a reminder, Virginia repealed its estate tax effective July 1, 2007, and Florida’s estate tax ceased to apply when the federal government repealed the credit for state estate taxes.

Endnotes

1. D.C. Code § 47-3701(14), as modified by the Fiscal Year 2018 Budget Support Act of 2017 (D.C. Council Bill 22-244), § 7173(b) changes D.C. Code § 47-3701(14) to read in part: “‘Zero bracket amount’ means ... (C) For a decedent whose death occurs after December 31, 2017, an amount equal to the basic exclusion amount as prescribed in section 2010(c)(3)(A) of the Internal Revenue Code and any cost-of-living adjustments made pursuant to section 2010(c)(3)(B) of the Internal Revenue Code.”

2. D.C. Bill B22-0685, Estate Tax Clarification Amendment Act of 2018. The inflation factor used by the District would be the local Consumer Price Index; it will not be tied to the Federal CPI (used for determining the federal exclusion amount).


3. The $11.4 million amount is the amount that the Maryland legislators believe that the federal exclusion would be in 2019. See Fiscal and Policy Note to Maryland HB0308.

4. Md. Code Ann., Tax-General § 7-309 (2017).

5. Maryland HB0308 (April 5, 2018).