2024 Updates to Gift and Estate Tax Exemptions: Navigating the New Limits

The Internal Revenue Service (IRS) announced important changes to the annual gift tax and estate tax exemptions for the new year. Understanding these updates is crucial for effective financial and estate planning.

2024 Gift Tax Exemption Changes

The IRS adjusts the gift tax exclusion periodically to keep pace with inflation. For 2024, the annual exclusion for tax-free gifts rises to $18,000 per recipient, up from $17,000 in 2023. For married couples, the exemption doubles, allowing them to gift up to $36,000 to each individual without incurring gift tax.

This means individuals can gift up to $18,000 to any person within the year without reporting it to the IRS. Gifts exceeding this limit require filing a gift tax return, though it doesn't necessarily result in a tax liability due to the option of applying the lifetime gift tax exclusion (discussed below).

Federal Estate Tax Exemption for 2024

The federal estate tax exemption (the amount you can pass at your death free of estate tax) also increases in 2024. Individuals will have an exemption of $13.61 million (up from $12.92 million in 2023), and couples will have a combined exemption of $27.22 million.

Consequently, estates valued below $13.61 million will not be subject to federal estate taxes. State estate taxes vary depending on where you live. 

Lifetime Gift and Estate Tax Exemption

The lifetime gift and estate tax exemption, which caps the total amount one can give away tax-free over their lifetime and at their death, will also increase to $13.61 million for individuals and $27.22 million for couples in 2024.

It's crucial to note that this high exemption amount is set to decrease significantly after 2025, potentially impacting the estates of those who pass away in 2026 and beyond. After adjustments for inflation, the lifetime estate and gift tax exemption will be approximately $7 million per person.

Seek Professional Guidance From an Estate Planner

Given the complexity of gift and estate tax regulations and the additional layer of state-specific taxes, consulting with a qualified estate planning attorney is highly recommended. They can offer tailored strategies to optimize your tax planning and ensure the most efficient transfer of your legacy.