Every taxpayer has an exemption for gifts made during lifetime and from estate tax at death. This exemption is the amount a person can transfer during life or at death without incurring a gift tax or estate tax on the transfer. In addition to the exemption amount, every taxpayer also has an “annual exclusion amount” to use for gifts each year. The annual gift tax exclusion is the amount you can give away each year without having to file a gift tax return or using up any of your lifetime exemption amount. Both the exemption amount and the annual exclusion amount are adjusted by the IRS each year for inflation. Married couples are able to share their exemption amounts through “portability,” and can combine their annual exclusion amounts each year for lifetime gifts.
The IRS announced the new exemption and annual exclusion amounts for 2023 in Rev. Proc. 2022-38. The exemption amount for 2023 will increase by $860,000 from the 2022 amount to $12,920,000 per person ($25,840,000 per married couple). The annual exclusion amount increases to $17,000 per donee. You may make gifts annually to an unlimited number of individuals of up to $17,000 per person ( or if joined by your spouse, up to $34,000 per person) without using any of your lifetime exclusion.. The increases in exemption amount and annual exclusion amount will allow individuals and families greater opportunities to transfer wealth without incurring gift and estate taxes on these transfers.
It is important to remember, however, that these large exemption amounts are scheduled to sunset at the end of 2025 (and revert to amounts in the estimated range of the $6,000,000 per taxpayer) unless Congress takes action to extend these enhanced exemption amounts prior to the sunset date.
If you have questions about what this means for you, your family, and your estate plan, please contact our team for more information.