For this year, the lifetime estate tax exemption amount is $5.49 million dollars (an increase from $5.45 million in 2016). This means that if a person passes away in 2017, up to $5.45 million would be exempt from the federal estate tax. Anything over is subject to the federal estate tax rate (with a maximum tax rate at 40%).
The lifetime gift tax exemption amount is also $5.49 million dollars for individuals. An individual can leave up to $5.49 million to their heirs and not have to pay a gift tax for 2017. For a married couple, that will be $10.98 million dollars that they can give away without paying the federal estate or gift tax.
The annual gift exclusion remains the same at $14,000, meaning that an individual can give $14,000 to as many individuals as he or she would like in a given year.
The IRS has set new estate and gift tax limits for 2016. The estate and gift tax exemption will now be $5,450,000 per individual, up from $5,430,000 in 2015. This means that an individual can leave $5.45 million to their heirs and pay no federal estate or gift tax for 2016 (considering he or she did not previously make any gifts during his or her lifetime). A married couple will be able to exempt $10,900,000 from federal estate and gift taxes. But it's not automatic. Under the rules of portability, the surviving spouse must elect to use portability by filing an estate tax return for the estate of the first spouse to die, even when no tax is due.
Separate from this lifetime gift exemption amount is the annual gift tax exclusion amount. The annual gift exclusion remains the same at $14,000 and an individual can give $14,000 to as many individuals as he or she would like.
In 2013, Congress and President Obama passed the American Taxpayer Relief Act making the laws governing federal estate taxes, gift taxes, and generation-skipping transfer taxes permanent for 2013 and beyond (adjusting for inflation for the years after 2011).
The IRS recently released the inflation adjustments for 2014, increasing several federal gift tax annual exclusion amounts and the lifetime gift, estate and generation skipping tax exemption totals. For 2014, the lifetime exclusion from federal gift or estate taxes increases from $5,250,000 to $5,340,000 per person. This means that if a person passes away in 2014 and their estate is equal to or less than $5,340,000, their estate does not have to pay federal estate taxes (considering he or she did not make any gifts during his or her lifetime). But use of any portion of this exclusion amount during one's life reduces the total availability for giving at death. Each state may still impose their own estate tax. California, however, is one of the states that does not impose an estate tax.
The chart below reflects how the federal estate tax has increased since 2010.
Year Amount Excluded Maximum Tax Rate
2010 Repealed N/A
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%
Additionally, the annual gift tax exclusion will remain the same at $14,000 per donor per donee. This means that each year, a person can gift to another person the maximum amount of $14,000 without any gift tax liability. A married couple can gift up to double that amount. Some exempt gifts include medical expenses, payment of tuition, charitable donations and gifts between spouses.
About the Author
Christine Chung, Esq.