IRS Announces the 2016 Estate and Gift Tax Limits

For 2016, the estate and gift tax exemption is $5.45 million per individual, up from $5.43 million in 2015. In short, individuals can leave $5.45 million to heirs and pay no federal estate or gift tax.

Here are some of the main IRS announcement highlights for 2016:

  • The unlimited marital deduction allows clients to leave all or part of their assets to their surviving spouse free of federal estate tax. But to use the late spouse’s unused exemption – a move called “portability”—clients must elect it on the estate tax return of the first spouse to die, even when no tax is due.
  • The annual gift tax exclusion amount is $14,000 for 2016, the same as 2015 and 2014. Individual clients can give away $14,000 to as many individuals as they like. The annual exclusion gifts don’t count towards the lifetime gift exemption.
  • For 2016, an individual that is 23 years old and under pays no tax on the first $1,050 of unearned income and then 10 percent rate on the next $1,050, the same as in 2015.
  • Individuals can make gifts for medical, dental, and tuition expenses for as many relatives (or friends) as they like so long as they pay the provider directly. These gifts don’t count towards any of the limits.

For more information in an easily readable format, Forbes presents a good summary here.

For a more in-depth look, the official IRS release document can be accessed here.