Federal Estate Tax Exemption Bumped Up for 2023

If you have a high net worth, there is good news for the new year: the IRS has increased their estate tax exemption for the year 2023. There are also higher thresholds for tax-free gifts, which can make a big difference in how and when you decide to distribute your assets.

Here is what you need to know about the new rules.

Higher thresholds for federal estate taxes

Florida does not levy a state estate tax. However, the federal government does. In 2022, the tax-free estate threshold was $12.06 million: estates worth less than $12.06 million were not taxed, but anything above that is taxed at a rate of 40 percent. In 2023, that threshold has been increased to $12.92 million. Married couples can combine their exclusions to exempt nearly $26 million from the federal estate tax.

There is also a higher annual limit on tax-free gifts. In 2022, people could give up to $16,000 tax-free per year per donee. Anything above that amount requires a gift tax return. In 2023, that limit has been bumped up to $17,000.

Both of these increases are part of the IRS’s annual inflation adjustments. While most people are more likely to be affected by changes to tax brackets and standard deductions, the estate and gift tax adjustments may be worth taking advantage of.

Keep in mind that this federal estate tax threshold is designed to “sunset” after 2025, meaning that there may be a limited time period in which you can take advantage of the higher limits. However, Congress may take action to preserve or even increase these thresholds.

If you might be affected by the new estate tax thresholds, an estate planning attorney can help you decide how to manage your assets and make lifetime gifts. Call the knowledgeable estate planning lawyers at Baumann Kangas Estate Law in Tampa, FL today.