Personal Finance

IRS bumps up estate-tax exclusion to $12.92 million for 2023. Here's what that means for wealthy Americans

Key Points
  • Starting in 2023, individuals can transfer up to $12.92 million to heirs, during life or at death, without triggering a federal estate-tax bill, up from $12.06 million this year. 
  • There's also a higher annual limit on tax-free gifts in 2023, rising to $17,000 from $16,000.
Bernd Vogel | Getty Images

Ultra-wealthy Americans can soon protect more assets from federal estate taxes, the IRS announced this week. 

Starting in 2023, individuals can transfer up to $12.92 million to heirs, during life or at death, without triggering a federal estate-tax bill, up from $12.06 million in 2022. 

Since married couples may share exclusions by electing portability, their combined limits are double, allowing transfers of up to nearly $26 million for 2023, compared to just over $24 million this year. 

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Next year, there's also a higher annual limit on tax-free gifts. In 2023, filers can give away $17,000 per recipient without reducing their $12.92 million lifetime exclusion. That's up from this year's $16,000.   

These increases are part of the agency's annual inflation adjustments, affecting federal income tax brackets, standard deductions and dozens of other provisions.

Whether the estate-tax exclusion is $12.06 million or $12.92 million, it won't likely make a "material difference," said Adam Brewer, a tax attorney with AB Tax Law in San Diego and Honolulu. "But certainly, every bit helps, so why not take advantage of it?"

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With the stock market down in 2022, many are sitting on lower-value portfolios and the higher exclusion next year may provide opportunities for "more aggressive" estate-planning techniques, such as shielding wealth via trusts, he said. 

"It just seems like almost a no-brainer," Brewer said.

Estate-tax exclusion may fall after 2025

The estate-tax exclusion has roughly doubled since Republicans' signature tax overhaul in 2017. Without further action from Congress, the provision will sunset after 2025, leaving a limited window to leverage the higher limits.

Still, many affected taxpayers have worked with advisors to prepare for the "potential risk," according to Brewer. "We're talking about ultra-wealthy individuals here," he said, and these families won't have a significant chunk of their wealth hurt by "the whims of Congress."

Regardless of what legislation happens, 2023 is shaping up to be a "very big year for estate planning," Brewer added.