The IRS recently issued Revenue Procedure 2022-38, which announced the increases to the federal estate and gift tax exemption as well as the gift tax annual exclusion for the year 2023. The 2023 federal estate and gift tax exemption has been increased to $12,920,000, up from $12,060,000 in 2022. The IRS also increased the annual exclusion for gifts to $17,000 in 2022, up from $16,000 in 2022.
This increase to the federal estate and gift exemption amount to $12,920,000 means that estates of individuals who die in 2023 with combined assets and prior taxable gifts in excess of $12,920,000 must file federal estate tax returns, and federal estate tax may be due. With proper estate and tax planning, the federal exemption amount for married couples is essentially double the individual exemption, or $25,840,000 under 2023 law.
Since 2012, the IRS has increased the federal exemption amount each year to adjust for inflation (besides in 2018, when the federal exemption amount doubled under the Tax Cuts and Jobs Act of 2017). Below is a list of historical federal transfer tax exemption amounts:
| Past Federal Transfer Tax Exemption Amounts | |
| Year(s) | Exemption |
| 2004-2005 | $1,500,000 |
| 2006-2008 | $2,000,000 |
| 2009 | $3,500,000 |
| 2010-2011 | $5,000,000 |
| 2012 | $5,120,000 |
| 2013 | $5,250,000 |
| 2014 | $5,340,000 |
| 2015 | $5,430,000 |
| 2016 | $5,450,000 |
| 2017 | $5,490,000 |
| 2018 | $11,180,000 |
| 2019 | $11,400,000 |
| 2020 | $11,580,000 |
| 2021 | $11,700,000 |
| 2022 | $12,060,000 |
| 2023 | $12,920,000 |
The tax rate for assets owned by an individual in excess of the $12,920,000 exemption amount remains at 40%, which is unchanged from 2022.
The 2023 federal annual exclusion amount for gifts is also increased to $17,000, up from $16,000 in 2022. Under this change, in 2023 an individual may gift up to $17,000 to any person without federal gift tax consequences, meaning that the gifts are gift tax free, no gift tax return is required, and no reduction of the federal gift tax exemption results. Married couples may gift up to double that amount ($34,000) to any one person in 2023 without federal gift tax consequences.
Each person’s specific circumstances will determine whether federal estate and/or gift tax planning is appropriate. Because the federal estate and gift tax exemption is set to decrease to $5,000,000 plus inflation in 2026, now is a good time for a review of your estate planning documents and to consider additional federal tax planning options.
If you have any questions about the federal estate and gift tax exemption and how it may impact your estate planning, please contact an attorney in our estate planning practice group, including Ryan Montgomery or Allison Int-Hout.