With the new year, comes new and increased exemption amounts. As of January 1, 2022, the following federal limits came into effect:
- The unified credit now carries a maximum of $12,060,000 per person. This applies to transfers made during life and after death. The exemption amount doubles to $24,120,000 for spouses (assuming a timely portability election). A federal estate tax return is required for anything over the exemption amount. The federal estate tax rate remains 40%.
- The annual exclusion is now $16,000 per year, per person. This applies to gifts made during your lifetime. If you “gift-split” and make a gift on behalf of you and your spouse, this doubles to $32,000. Anything over this amount requires a federal gift tax return and reduces the available unified credit (see above), unless you decide to pay any gift tax at the time of the gift. The federal gift tax rate remains 40%.
The current exemption amount is scheduled to “sunset” in 2025. In other words, this amount will be nearly cut in half (adjusted for inflation) in only a few years, and there will be a noticeably higher number of people with tax implications. Fortunately, there are options to mitigate, and even to potentially eliminate, these implications.