Gift and Estate Tax Limits for 2023 for US and Non-US Citizens
The IRS recently announced an increase in the 2023 estate and gift tax exemptions. The annual gift tax exclusion is increasing to $17,000 for each person receiving a gift, which is the highest this exclusion has ever been. For a spouse that is a non-U.S. citizen, the annual amount that can be given is $175,000. The gift tax and estate lifetime exemption will increase to $12.92 million per individual in 2023.
This allows married couples to shield up to $25.84 million without being subject to federal gift taxes and without having their estate taxed upon death unless it exceeds that amount. If a married couple has reached the maximum amount allowed for these lifetime gifts, they may only give away $1.72 million in 2023.
If you and your spouse are both U.S. citizens, then the government sets no limit on how much you can transfer to one another. This is because once assets exceed the allowable combined estate tax exemption, the surviving spouse will be taxed on any assets over the exemption. In other words, the government gets its money either way, so it doesn’t care how much money you and your spouse transfer back and forth between you.
If one spouse is a non-U.S. citizen, the government might not get what it’s owed upon the citizen spouse’s death. This is because a U.S. citizen might not fall under the rules for estate taxes. Therefore, transferring wealth to a spouse who is not a U.S. citizen might escape Uncle Sam’s reach. Because of this, the limit for 2023 for asset transfers to a non-U.S. spouse is $175,000.
While these lifetime estate and gift tax exemptions are extremely generous for 2023, they are set to be cut in half in 2026. You may wonder whether gift and estate tax limits affect you much if you are not wealthy. The federal estate tax is a tax on stocks, real estate, cash, and other assets that go to your heirs following your death.
Only the wealthiest estates pay this tax because it is levied on the portion of your estate that exceeds the exemption level. Since extremely wealthy households already receive large tax breaks, the estate tax limits—to a relatively small degree—the wealth that otherwise goes untaxed.
The Center on Budget and Policy Priorities states that only about 2 out of every 1,000 estates will owe federal estate taxes—meaning that 99.8 percent of all estates in the U.S. will owe no federal estate tax. While the wealthy are not in favor of federal estate taxes, those taxed estates usually pay only about one-sixth of their value in taxes.
This rate is still significantly below what the average “middle-class” person pays on their own earnings since the wealthy are largely exempt from most taxes. Remember, estate taxes are due only on the portion of the value of the estate that exceeds the federal exemption levels. Heirs can also shield a significant portion of an estate’s remaining value through charitable giving and other tax breaks that are only available to those with significant wealth.
Some estates use grantor-retained annuity trusts to pass along tax-free assets, which involves putting money into a trust that will pay back the estate by the initial amount plus interest over a two-year period. If the investment, typically stock, rises in value more than that of the Treasury rate, any gains can be given to heirs tax-free. Investments that do not rise in value are returned to the estate.
Contrary to what most people believe, only a handful of small family-owned businesses and farms will owe estate tax—those with business assets valued at less than $5 million. Of these small family-owned farms and businesses that will be required to pay estate taxes, they will typically owe less than six percent of their value. Special tax provisions also allow these small businesses and farms to spread estate tax payments over a 15-year period.
While many believe repealing the estate taxes altogether would encourage people to save more money, there has never been a correlation between taxing an estate and saving the money that would not be taxed. The IRS compliance costs for ensuring estate and gift taxes are properly paid is only about 7 percent of the amount received from these taxes and the U.S. taxes estates much less than other developed countries. U.S. estate and gift tax revenues at all levels of government were well below average when compared with 26 other countries with a similar economy.
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Call our law firm immediately if you have questions about the changes to real estate taxes in 2023. We can help you evaluate your needs and help you make the choices that will best protect your assets. We know Nevada laws and use this knowledge to help our clients achieve their long-term goals. Call us today for a consultation and review, or fill out our confidential contact form.
John Park is a highly experienced attorney in estate planning, probate, business law and guardianship to help people organize the elements of their lives through careful estate planning and asset protection measures.