2023 Gift and Estate Tax Exclusions Increased

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2023 Increase to Estate and Gift Tax Exclusions

The IRS announced that the annual gift tax exclusion is increasing next year due to inflation. The exclusion will be $17,000 per recipient for 2023 (up from $16,0000. For married couples, the tax exclusions are a combined $34,000. The annual gift tax exclusion is the amount an individual may gift to any number of persons without occurring a gift tax or reporting obligation.

In addition, the estate and gift tax exemption will be $12.92 million per individual for 2023 gifts and deaths, up from $12.06 million in 2022. This increase means that a married couple can shield a total of $25.84 million without having to pay any federal estate or gift tax.

Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2023, $17,000) per recipient tax-free without using up any of the taxpayer’s lifetime gift and estate tax exemption (in 2023, $12.92 million). The assets are then removed from the taxpayers’ taxable estates, the assets’ future appreciation also avoids gift and estate taxes.

If one gifts an amount that is above the annual gift tax exclusion, that individual will use a portion of his or her lifetime gift tax exemption ($12.92 million in 2023). The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. If one makes gifts in excess of the annual gift tax exclusion, one must file a gift tax return to report the gift and track the amount of the lifetime exemption that has been used.

It should be noted that although the IRS has announced that the lifetime estate and gift tax exemption will increase to $12.92 million in 2023, that amount is set to be cut in half at the start of 2026.