estate planning

2023 Gift and Estate Tax Exemption

2023 gift and estate tax exemption and annual gift exclusion. How much can you gift without a gift tax?


 

The IRS has announced the 2023 Estate and Gift Tax Exemptions

Estate, gift and generation-skipping transfer tax exemption amount is $12,920,000 ($25,840,000 for a married couple) (increased from 2022's exemption of $12,060,000 a $860,000 increase, or $1,720,000 for a married couple)

Gift Tax Annual Exclusion is $17,000 ($34,000 for a couple), (increased from 2022 exclusion of $16,000 - a $1,000 increase)

How We Got Here

In 2010, President Obama raised the gift and estate tax exemption to $5,000,000, indexed for inflation.

In 2017, President Trump doubled the gift and estate tax exemption to $10,000,000, also indexed for inflation, but Trump's exemption is scheduled to sunset at the end of 2025, unless Congress and the President make it permanent.

If Trump's exemption sunsets at the end of 2025, the gift and estate tax exemption will default to Obama's exemption, which is estimated to be around $7,000,000 ($5,000,000 indexed for inflation since 2011).

Historical Gift and Estate Exemptions

The current estate and gift tax situation is very positive compared to years past.

Below is a table showing the historical estate tax exemption, estate tax rate and annual exclusion since 1997.

Notice that in 1997 the estate tax exemption was only $600,000 and the estate tax rate was 55%, which meant that if you had an estate worth more than $1,000,000 your estate tax would be $1,000,000 - $600,000 = $400,000 (55%) = $220,000. Yikes!

Year Gift and Estate Tax Exemption Estate Tax Rate Annual Gift Exclusion
1997 - 2001 $600,000 - $675,000 55% $10,000
2002 - 2005 $1,000,000 - $1,500,000 50% - 47% $11,000
2006 - 2008 $2,000,000 46% - 45% $12,000
2009 $3,500,000 45% $13,000
2010 no estate tax 😎 no estate tax 😎 $13,000
2011 - 2017 $5,000,000 - $5,490,000 35% - 40% $13,000 - $14,000
2018 $11,180,000 40% $15,000
2019 $11,400,000 40% $15,000
2020 $11,580,000 40% $15,000
2021 $11,700,000 40% $15,000
2022 $12,060,000 40% $16,000
2023 $12,920,000 40% $17,000

Gifting - How Much Can You Gift?

Many people think they can only gift $15,000 per year per person. They are referring to the annual estate tax exclusion (which for 2023 will be $17,000).

The annual estate tax exclusion is what we call the freebie gift amount. In 2023, you can gift $17,000 per year to as many people as you want, literally anyone, it doesn’t even have to be family, with no impact on your gift and estate tax status.

But you can actually gift way more that without incurring a gift tax.

The 2023 gift and estate tax exemption is $12,920,000. The exemption is a combination of lifetime gifts and estate value.

When you make gifts, you can use your $17,000 per person annual gift exclusion. But if you want to gift more, you can tap into your $12,920,000 gift and estate tax exemption. 

Let’s say you want to gift $1,000,000 to your daughter in 2023. $17,000,000 would be covered by the annual gift exclusion, the freebie. The remaining $983,000 would be covered by your lifetime gift and estate tax exemption. If you died in 2023, your remaining estate tax exemption would be $11,920,000 ($12,920,000 - $1,000,000). As long as your estate value is less than $11,920,000, there would be no estate tax - even though you made a big gift to your daughter.

Your ability to gift without a tax is great. You have the annual estate tax exemption of $17,000 per person, plus you can tap into the $12,920,000 estate and gift tax exemption.

FYI. This discussion is about the federal gift and estate tax. Some states have a separate "state" estate tax. California does not have a state estate tax. California has very high income and sales taxes while you are alive, but it has no estate tax when you die. We have that going for us!

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