With a new year approaching, the IRS has released 2022 figures for the federal lifetime gift and estate tax exemption, as well as the annual gift tax exclusion and others.
Despite concerns that President Biden will significantly reduce the federal lifetime gift and estate tax exemption, the current proposal of the Build Back Better Act does not seek to alter these values. While we remain vigilant, continuing to monitor pending legislation and the components of the Build Back Better Act which affect estate planning, the IRS has provided that these exclusions and exemptions will increase in 2022:
Federal Lifetime Gift and Estate Tax Exclusion
The federal lifetime gift and estate tax exclusion value will increase to $12,060,000 per person, or $24,120,000 per couple with the use of portability (the act of taking a spouse’s unused exemption and adding it to your own) in 2022. The available amount for the federal lifetime gift and estate tax exemption is, however, reduced by the amount of lifetime gifts made.
The 2021 exemption value is $11,700,000, or $23,400,000 per couple. These values were indexed for inflation to generate the 2022 values.
The figure for the federal lifetime gift and estate tax exemption is set to sunset at the end of 2025 — this figure will likely be cut in half (or more) at the beginning of 2026. Therefore, proactive planning is increasingly important.
Annual Gift Tax Exclusion
The annual gift tax exclusion value will increase (from $15,000 per person) to $16,000 per person (gift recipient). There is no limit to the number of people to whom you can gift this value annually.
For example, a father can gift $16,000 to each of his four children without running afoul of this exclusion. As the exclusion is also per person, the children in this example could be gifted $16,000 each from their father and $16,000 each from their mother as well.
Gifts falling below the exclusion threshold do not count towards the utilization of the federal lifetime gift and estate tax exemption values mentioned above, though gifts above that threshold do. Gifts in excess of this threshold should be properly reported on an annual gift tax return for every year that the threshold is exceeded.
As we continue to keep an eye on pending legislation, The Estates & Trusts team at The Lynch Law Group will provide updates to these tax exemptions and more, ensuring you all the information needed for a happy new year.
Pittsburgh Estates & Trusts Attorneys
With questions surrounding these figures and legislation, or for assistance with your estate planning, contact our team at 724.776.8000.