2023 Estate and Gift Tax Exemptions Set to Increase: What Does This Mean for You?
Tax planning and wealth transfer go hand in hand. Due to a significant increase in the tax exemption amount set for 2023, new estate planning opportunities may be available.
How We Got Here
The American Taxpayer Relief Act of 2012 set a permanent estate tax and gift tax exemption of $5,000,000 per person, to be indexed for inflation. Five years later, that amount was increased to $11,180,000 per person under the Tax Cuts and Jobs Act of 2017. This amount has been adjusted upward for inflation every year since.
In 2023, the new exemption amount is set to be $12,920,000 per person. This is a $860,000 increase from the 2022 amount of $12,060,000 per person. For some people, that $860,000 increase may offer additional planning opportunities to transfer wealth and shelter assets from estate taxes.
The Gift Tax Exclusion
In addition, the annual gift tax exclusion is set to rise from $16,000 per recipient in 2022 to $17,000 per recipient in 2023. You can give up to $17,000 to someone without incurring gift tax consequences or reducing the remaining lifetime exemption. Lifetime gifts more than the annual exclusion amount reduce the available exemption amount.
Annual gifting is a tax-efficient way to pass wealth to others in addition to any taxable gifts using the exemption. For example, if someone has already used up their $12,060,000 lifetime exemption, as of January 1, 2023, they could gift an additional $860,000 (using the increased exemption amount) and make as many $17,000 gifts to individuals as they would like without gift tax concerns. Additionally, these gift amounts would be removed from their estate for estate tax purposes.
Potential Time Limit on This Opportunity
The Tax Cuts and Jobs Act of 2017 will sunset at the end of 2025 unless Congress extends the current exemption amounts. If Congress does not act, the $5,000,000 exemption set forth in the American Taxpayer Relief Act of 2012—as indexed for inflation—will be restored on January 1, 2026.
Because of this potential time limit, now is the time to complete any 2022 gifting under the current exemption amounts and to consider your 2023 gifting plans.
Work with an Experienced Florida Estate Planning Team
If you would like to discuss your current gifting or estate planning needs and these possible opportunities, call our office at 321-804-2915 to schedule your meeting today.