Each year the Internal Revenue Service (IRS) evaluates and frequently adjusts these exemptions and exclusions to account for inflation. Below are brief summaries of: (1) the most common exemptions and exclusions, (2) the IRS's adjustments to such exemptions and exclusions, and (3) what the 2024 adjustments mean for you.
Annual exemption
The annual federal gift tax exclusion—commonly referred to as the “annual exclusion”—is the amount that a taxpayer can gift to another individual without incurring a gift tax or using the taxpayer's lifetime gift and estate tax exemption (which is $13,610,000 in 2024). . The annual exemption amount for 2024 will be $18,000 (up from $17,000 in 2023). The annual exemption applies to gifts of $18,000 to any giver or recipient in a calendar year. This means that a parent can gift $18,000 per child (or any other amount) without being required to report the gifts on a gift tax return (Form 709) and without using any of their unified credit. Additionally, since any individual can take advantage of this exemption, a married couple can gift up to $36,000 each made per calendar year without using any estate or gift tax exemptions.
There are four types of gifts that are not subject to gift tax: gifts to political organizations; gifts to certain exempt organizations or charities; gifts that qualify for the education exemption (such as tuition payments); and gifts that qualify for medical exemptions.
Unified Credit
The unified credit is also known as the estate and gift tax exemption, the applicable exemption amount, or the basic exemption amount. The unified credit is a combination of the gift tax exemption and the estate tax exemption amount and is the amount an individual can give either during their lifetime or at death before any gift or estate tax is assessed against the individual ( or his property). The unified credit in 2024 will be $13,610,000 (up from $12,920,000 in 2023). The unified loan can be divided between spouses. When used correctly, a married couple can transfer up to a combined $27,220,000 without incurring gift or estate tax. This allows a wealthy married couple to gift an additional $1,380,000 in 2024 compared to 2023 without incurring additional tax liability.
Exemption of Generation Transfer Tax (GSTT).
The GSTT exemption is the amount that can be left to a skip generation without incurring GSTT. For tax purposes, a “skipped generation” is a generation two or more generations younger than the transferor. Like the unified credit, in 2024 the GSTT exemption will increase to $13,610,000. While it looks similar to the unified credit, it's important to note that the GST tax exemption is not “portable” or divisible with your spouse. It is therefore important to take advantage of any exemptions from GST taxation during life or death.
Please note that the current exemptions originated with the Tax Cuts and Jobs Act of 2017 and are currently scheduled to expire at the end of 2025. On January 1, 2026, the higher exemption amounts will revert to the exemption of the $5 million allowed in 2017. adjusted for inflation, unless Congress decides to act sooner.
Joshua Decker is of counsel and Maureen Cook is an associate, both at Spencer Fane LLP.
The authors would also like to thank Serena O'Neil, Jackie Pringle, Charli Steed and Samuel Thomas for their contributions to this article.