The IRS announced inflation adjusted annual increases to the federal gift and estate tax exemptions for 2017.
The new lifetime gift and estate tax exemption is $5.49 million. An individual can therefore make gifts and leave money and property to beneficiaries totaling $5.49 million without paying any estate or gift tax. For a married couple, the new lifetime exemption is effectively $10.98 million. For gifts and bequests exceeding the exemption amount, the current federal estate and gift tax rate is 40 percent. Gifts to U.S. citizen spouses and charities, however, are free of tax and do not encroach on the lifetime exemption.
Depending on the domicile of any individual and on the value of his or her estate, state estate taxes may also be due.
The new exemption amount for the generation skipping transfer tax (GST tax), which applies in general when gifts and bequests are made to grandchildren and later generations, is also $5.49 million for an individual and $10.98 million for a married couple.
The annual gift tax exclusion remains the same: $14,000 per person per year. This feature allows a person to make tax-free gifts annually of up to $14,000 each to as many people as he or she wants without paying any gift taxes or using any of his of her lifetime exemption. A married couple can give up to $28,000 per recipient per year.
The annual gift tax exclusion has been the same since 2014 but was expected to increase in 2017. The annual gift tax exclusion is also increased based on inflation, but only in $1,000 increments.
The annual exclusion for gifts made in 2017 to a spouse who is not a United States Citizen will be $149,000 (increased from $148,000 in 2016).
These annual adjustments apply to transfers made on or after January 1, 2017. The following table shows a comparison of the 2016 and 2017 exemptions and exclusions.