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When Will the Inflation Adjustments Occur?

The following is an insert to "Highlights of the New Tax Law" Article.

The various inflation adjustments of the new law are tied to the Department of Labor Consumer Price Index (CPI), with base year being 1997. These increases are not effective until January 1, 1999, and we do not know what the CPI will do between 1997 and 1999. However, recent history has been:

5 Year CPI increase (June, 1992-June, 1997) -- 14.37%
1 Year CPI increase (June, 1996-June, 1997) -- 2.3%

If economic indicators remain similar in the future —

Annual Exclusion—the CPI must increase 10% to result in an exclusion increase ($1,000 for each 10%). Thus, the annual exclusion may reach $11,000 in 2001 or 2002.

GST Exemption—the CPI must increase 1% to result in an exemption increase ($10,000 for each 1%). We may see some increase beginning immediately in 1999.

§6166 2% Interest Amount—the CPI must increase 1% to result in an increase in the amount of tax eligible for the 2% interest rate (amount of tax is based on each $10,000 of asset value for each 1% of increase). Again, we may see some increase in 1999.

§2032A Special Use—the CPI must increase 1-1/3% to result in an increase in the amount of aggregate decrease in value of qualified real property ($10,000 for each 1-1/3%). Also likely to increase in 1999.

The contents of this publication are for information purposes only and are not meant nor should be construed to be legal advice. Note, also, the date of the document. Laws are constantly changing, and are subject to differing interpretations. We, therefore, urge you to do additional research or to contact your own legal or tax counsel before acting on the information contained here.

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