IRS Announces New Exemption and Annual Exclusion Amounts for 2023
The IRS recently announced increases to the annual exclusion and estate, gift, and generation-skipping transfer tax exemption amounts that will become effective on January 1.
The annual gift tax exclusion allows an individual to give a certain amount per person each year tax-free without using any of the giver’s lifetime gift exemption. The annual exclusion amount was increased just last year, the first time in four years there was such an increase. To have another increase this year is unusual, but the annual exclusion amount will be increased from $16,000 per person per year to $17,000 per recipient for 2023. This means a married couple could gift $34,000 to an individual. There is no limit on the number of individuals you can give to.
The annual amount a person may give to a spouse who is not a US citizen will increase to $175,000. Spouses who are both US citizens may generally transfer unlimited amounts to each other without incurring any gift tax.
The estate, gift, and generation-skipping transfer tax exemption will be $12.92 million per individual for 2023 gifts and deaths, up from $12.06 million in 2022. The exemption applies to gifts that are given to an individual in excess of the annual exclusion amount. Beginning January 1, a married couple can have a net worth of $25.84 million without having to pay any federal estate or gift tax. If you have already maxed out your lifetime gifts, you now have an additional $860,000 you can give away in 2023 ($1.72 million combined for a husband and wife).
While these changes are good news, it is important to keep in mind that even though the IRS has announced this increase, the exemption amounts are still set to be cut by half (or more) at the start of 2026 in accordance with 2017 tax law changes.
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