The IRS recently announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions as detailed in Revenue Procedure 2022-38. Included in the list of tax changes are increases for estate and gift tax exemptions, providing additional tax planning opportunities for the new year.
Unified Credit Against Estate & Gift Tax
For gifts made or for an estate of a decedent dying in calendar year 2023, the Unified Credit Against Estate & Gift Tax, more commonly referred to as the lifetime exemption, has increased to $12.92 million, up from $12.06 million in 2022.
For taxpayers that have already maxed out their nontaxable gifts in prior years, this allows a married couple to gift an extra $1.72 million in 2023.
As provided in the TCJA, without future action by congress, the increased exemption amounts will sunset after December 31, 2025, and revert to pre-2018 amounts (and adjusted for inflation). If a married couple’s estate is currently below the exemption amount and one spouse passes, the surviving spouse should consider making a portability election on a timely filed estate tax return in order to preserve the increased exemption.
Generation Skipping Transfer Tax
The federal Generation Skipping Transfer Tax (“GST”) has similarly increased to $12.92 million, providing further tax planning opportunities transfers to grandchildren or more remote descendants. However, unlike the federal lifetime exemption, any remaining GST tax exemption unused at the death of the first spouse cannot be used by the surviving spouse.
Annual Exclusion Gifts
For calendar year 2023, the annual gift exclusion is now $17,000, up from $16,000 in 2022. Married couples can double the amount up to $34,000 per donee per year. Other items excludable from gift tax are tuition or medical expenses paid directly to the school or health care provider, gifts to a spouse, or gifts to a qualifying charitable or political organization.
Gifts must be of a present interest, which is generally cash or similarly property, and cannot include gifts of future interests in property. Additionally, for calendar year 2023, gifts to a non-citizen spouse has increased to $175,000. While gifts between spouses are unlimited for U.S. citizens, there are additional restrictions when the donee spouse is not a U.S. citizen.
If you have any questions on the 2023 inflation adjustments and how you can benefit from additional gift and estate tax planning, please do not hesitate to reach out to us for assistance.