What You Need to Know About the Increased Gift and Estate Tax Exemption Amounts for 2024

The US Internal Revenue Service has announced that the annual gift tax exclusion is increasing to $18,000 per recipient for 2024—the highest exclusion amount to date.

The increased gift and estate tax exemption amounts will be $13.61 million per individual for 2024 gifts and deaths, up from $12,92 million per individual in 2023. This increase means that a married couple can shield a total of $27.22 million without having to pay any federal estate or gift tax. For a couple who has already maxed out lifetime gifts, this means that they may now give away another $1.38 million starting in 2024.

Lifetime Estate and Gift Tax Exemption

If an individual gifts an amount that is above the annual gift tax exclusion, a portion of the individual’s lifetime gift tax exemption ($13.61 million in 2024) will be used. The gift and estate tax exemption are connected. The use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free.

It should be noted that the increased exemption amount, which was doubled when the sweeping tax overhaul known as the Tax Cuts and Jobs Act was enacted in 2017, is set to sunset at the end of December 2025. If this happens without further action by the legislature, the estate and gift tax exclusion will be back to its pre-2017 level of $5 million, adjusted for inflation. 

Annual Gift Tax Exclusion

The IRS sets the annual gift tax exclusion each year, which allows a taxpayer to give a certain amount each year tax-free without using up any of the taxpayer's lifetime gift and estate tax exemption. In 2024, the annual gift tax exclusion amount is $18,000.00. For married couples, this means that they can give $36,000 per recipient beginning next year.

For example, if a married couple has 2 children and 4 grandchildren, they may transfer $216,000 in 2024 to their children and grandchildren tax-free without using their combined $27.22 million gift tax exemption. Ini this way, assets are removed from the taxpayers’ taxable estates thus reducing the future tax burden at death.

Gifts to Non-US Citizen Spouses

In general, spouses who are both US citizens may transfer unlimited amounts to each other without incurring any gift tax. However, gifts to a non-US citizen spouse are limited. Effective 2024, the first $185,000 of gifts to non-US citizen spouse is not included in the total amount of taxable gifts. Transfers to a surviving spouse who is not a U.S. citizen require compliance with certain tax rules in order to qualify for the marital deduction.

Check in with your financial and tax advisors for tax optimization stragegies and review your estate plan regularly to ensure that it is current in light of the changing tax landscape.