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IRS Increases Gift and Estate Tax Exclusion: What You Should Know

May 15, 2024 | Estate Tax, IRS

Many people choose to gift assets to their loved ones while they are still alive so they may see them enjoying the benefits. In 2024, the Internal Revenue Service (IRS) increased the limits for both the gift tax exclusion and the lifetime estate and gift tax exemption to the highest amounts in history. Those taxpayers with large estates can use these tools to their advantage to help reduce their estate tax burdens.    

What is the Gift Tax Exclusion?

Each year, the IRS sets the annual gift tax exclusion at a certain amount. This exclusion lets a taxpayer give a gift up to the specified amount tax-free, without using up their lifetime gift and estate tax exemption. This year, a taxpayer can give up to eighteen thousand dollars ($18,000) per recipient without incurring a tax burden. Married couples can give thirty-six thousand dollars ($36,000) per recipient. The assets are not only removed from the taxpayers’ taxable estates, but any future appreciation also avoids incurring a gift and estate tax.

If an individual or married couple makes gifts over the annual gift tax exclusion, a gift tax return will need to be submitted to the IRS for the following year.  

Gifts to a Non-US Citizen Spouse

Unlimited gifts can be made between two spouses who are United States citizens, tax-free, during their lifetimes. A married couple has a combined $27.22 million in estate tax exemptions — and any excess of this limit will only be taxed upon the death of the surviving spouse. However, gifts made to a spouse who is a non-U.S. citizen are limited, even if they are a permanent resident.

Since a non-U.S. citizen spouse may not be subject to the U.S. estate tax, gifts made to them are subject to an annual exclusion amount. In 2024, the amount that may be transferred to a non-U.S. citizen spouse before taxes are incurred is $185,000. 

What is the Lifetime Estate and Gift Tax Exemption? 

Not to be confused with the gift tax exclusion, the federal gift and estate tax exemption has also gone up. As of January 1, 2024, the federal estate and gift tax exemption amount went up from $12.92 million to $13.61 million per individual — and a combined $27.22 million for a married couple. This increase lets individuals avoid further generation transfer skipping tax on transfers of wealth from one generation to the next. Unlike the federal estate and gift tax exemption, any generation transfer tax exemption that is not used during an individual’s lifetime cannot be transferred to a surviving spouse.    

The amount of the lifetime estate and gift tax exemption is scheduled to go down by half at the end of 2025, unless new legislation is enacted or an extension is put into place. This means it’s important to use any remaining exemptions you might have quickly to ensure you can take advantage of the historically high amounts. 

Contact an Experienced New York Tax Attorney

Estate and gift tax matters can be complex — and it’s crucial to have a knowledgeable attorney by your side who can best advise you. Offering reliable representation to individual taxpayers, businesses, and corporations, Brinen & Associates represents clients for a broad range of tax matters at both the state and federal levels. Call (212) 330-8151 or send us a message to learn more about how we can assist you.                             


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