Effective January 1, 2023, the gift tax annual exclusion increased from $16,000 (2022 number) to $17,000 per recipient. This means you can gift this amount to as many people as you wish in 2023 without using up your lifetime gift and estate tax exemption or paying gift tax. Married couples who gift-split may gift a combined $34,000 per person in 2023 without making a taxable gift.
Another significant change is that the combined gift and estate tax exclusion has been increase. In 2022, it was $12.06 million but has now risen to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made at death, before being responsible for gift or estate tax. Those who have used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.
Please keep in mind that these figures will revert to much lower amounts when the current Tax Cuts and Job Act expires on December 31, 2025, if Congress does not extend it or make it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels upon expiration, as adjusted for inflation. There are a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. Scarola Law partners with CPAs and wealth advisors. If you have questions about how you can benefit from the increased tax exclusions, please contact us today so we can connect you with our trusted partners.