Gift Tax Annual Exclusion Amount Increases for the First Time Since 2018

    As inflation recently hit a three-decade high, the IRS announced adjustments to various tax deductions, credits, and exemptions. One such adjustment is the increase in the annual gift tax exclusion from $15,000 in 2021 to $16,000 in 2022.
 

    The annual exclusion, found in Internal Revenue Code § 2503(b), is the portion of a gratuitous transfer (i.e., a transfer made for less than full and adequate consideration) that is not included in the total amount of taxable gifts for the year. While the codified $10,000 annual exclusion amount was indexed for inflation as part of the Tax Relief Act of 1997, “[i]f [the annual exclusion,] as adjusted [by this provision,] is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.” Because the annual inflation adjustment is rounded down, it tends to increase every three to five years. This is the first increase since 2018.

    It is wise to take full advantage of the annual exclusion with deliberate and methodical planning because, when strategically combined with other transfer techniques, the annual exclusion can serve as a powerful wealth transfer tool.

    For questions regarding this blog post or any other estate planning matter, please feel free to contact Jana Simons at (214)744-3700 or by email at jsimons@meadowscollier.com.