The amount you can gift to any one person without filing a gift tax form is increasing from $15,000 to $16,000 in 2022, the first increase since 2018. Many people remember the $10,000 per person limit, which has increased over the years to $16,000. Remember – tax law and Medicaid law are like oil and water – there are NO free gifts for Medicaid.
The IRS’s announcement that the annual gift exclusion will rise for calendar year 2022 means that any person who gives away $16,000 or less to any one individual (anyone other than their spouse) does not have to report the gift or gifts to the IRS. Any person who gives away more than $16,000 to any one person is required to file Form 709, the gift tax return.
Higher Estate Tax Exclusion
The IRS also made changes to the basic federal gift, estate and generation skipping transfer tax exclusion amount.
For the estates of decedents dying during calendar year 2022, the exclusion will be $12,060,000 for individuals and $24,120,000 for couples, up from $11.7 million and $23.4 million for calendar year 2021. This increase in the estate tax exclusion means that the lifetime tax exclusion for gifts will also rise to $12,060,000, as should the generation skipping transfer tax exemption.
This $12,060,000 million lifetime gift tax exclusion means that even if you are required to file Form 709 because you gave away more than $16,000 to any one person during the year, you will owe taxes only if you have given away more than $12,060,000 million in past and present taxable gifts!
New York State has an estate tax exemption of $5,930,000, but no Gift Tax, so a New York resident can gift $12,060,000 plus $16,000 for each recipient of a gift and pay no tax.
Why This Matters If You Aren’t a Millionaire
The vast majority of us don’t have $12,060,000 million to give away. As a result, under current rules the filing of Form 709 is irrelevant for most people, although still required. Congress proposed to change the exclusion limit in 2021, and still could – but regardless of Congressional action the exclusion gets cut in half on 1/1/26. To stay within the IRS’s rules, consider gifting up to the $16,000 limit to multiple family members or other individuals.
These changes may or may not have consequences to your tax returns; but there are also estate planning implications to consider, especially for individuals who have formed trusts. By gifting money or property to heirs through a trust, you’ve spared them the process of probate court following your death. If asset protection is a concern, a trust can preserve your estate and shelter it from nursing home or home care costs when done right.
With the new year upon us, these new gift tax and estate tax exclusion numbers are yet another important reason to review your goals with an estate planning attorney. Pierro, Connor & Strauss offers a free consultation, and we would be happy to meet with you and your family. Please contact our office at 866-951-PLAN today.
For details from the IRS on many of these and other inflation adjustments to tax benefits, go to: https://www.irs.gov/pub/irs-drop/rp-21-45.pdf