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The IRS recently announced that the annual gift tax exclusion is increasing to $17,000, per recipient by 2023. This is the highest ever exclusion. This change will take effect on January 1, 2023. This means that individuals can donate up to $17,000 per person without having to spend each gift on the life and estate tax exemption, gift tax payment or Married couples who gifted separately will each contribute $34,000 in 2023 without giving a tax-deductible gift.
Another major change, effective January 1, 2023, is the unification of the gift and estate tax. Currently it is $12.06 million, which will increase to $12.92 million ($25.84 million for a married couple). Gift and estate tax exemption is the sum of all gifts made by a person during his lifetime, including transfers made at death, before becoming subject to gift and estate tax. or
Those who died on December 31, 2022, can donate up to $860,000 tax-free starting January 1, 2023. Married couples in this situation can make additional gifts for $1.72 million.
Another big change related to inflation to be aware of: The cross-generational tax exemption is also increasing. It reached $12.92 million, up from $10 million. This can be useful for someone who wants to put assets into a trust for the benefit of future generations. By doing so, they can make a tax-deductible contribution to this trust. As a result, these assets remain in the trust for multiple generations with no gift, estate, or generation-skipping taxes due on distributions or at the end of the trust.
It’s important to note that the southern sun exclusion rules are set on December 31, 2025 and these figures will revert to the lowest amounts. The return to low incomes will occur when the current Taxpayer Act and Jobs Act expires unless extended or confirmed by Congress. These exemptions will be reduced by about 50 percent to 2017 levels when they expire, adjusted for inflation.
There are several planning strategies available to take advantage of these larger savings before they become unavailable. If you have questions about how you can benefit from the increased tax deductions, contact an estate planning attorney in your area.
The legal advice in this post is general in nature, talk to your attorney for advice to best suit your situation.
Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation and approved by the Pennsylvania Supreme Court. He is a principal at the law firm of O’Donnell, Weiss & Mattei, PC, 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville, 610-323-2800, www. owmlaw.com. You can visit Ms. Hobbs at rhobbs@owmlaw.com
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