Effective January 1st, 2024, the amounts each person can transfer estate and gift tax-free have increased. Below, our California estate planning attorney explains what you need to know.
Annual Gift Tax Exclusion
The IRS increased the 2024 annual gift tax exclusion due to inflation and now set the exclusion amount at $18,000 per recipient—the highest exclusion amount in history. What this means is that the amount you may gift each year to as many individuals as you wish is $18,000 per individual ($36,000 for a married couple). If you make a gift over $18,000 to any one individual, you must file a gift tax return. The amount that is in excess of $18,000 will then be deducted from your estate tax exemption. However, no estate or gift tax is due until such time as you have used up your entire estate tax exemption.
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2024 Estate Tax Exemption
In 2024, the estate tax exemption increases to $13.61 million for individuals ($27.22 million for married couples). What this means is that for individuals with estates worth $13.61 million or less ($27.22 million or less for married couples), you can pass away without an estate tax due. Estate taxes now are only applicable to 0.2% or less of the U.S. population.
Warning: These Amounts Are Sunsetting at the End of 2025
It is important to note that the 2017 Tax Cut and Jobs Act, which provided these increased exclusion and exemption amounts, sunsets at the end of 2025. Effective January 1, 2026, the estate tax exemption is set to be reduced by half (adjusted for inflation), to somewhere around $7 million for individuals and $14 million for married couples.
Whether this sunset provision goes into effect or is modified will depend on who controls Congress and the White House at that time, which certainly makes for an even more interesting election later this year!
Stay Tuned for Updates
If the current sunset law goes into effect, families that could face an estate tax liability in 2026 may benefit from transferring assets and making gifts out of their estate in 2025 or sooner. However, this may not be necessary or advisable if the sunset law changes, so be sure that you are signed up for our e-mail newsletter and keep up with any important legal updates.