High inflation is resulting in some adjustments to federal estate taxes and gift taxes for 2023. According to The Economics Daily: U.S. Bureau of Labor Statistics, consumer prices are up 9.1 percent over the year ended June 2022, largest increase in 40 years.
Beacon Hill Institute reported in July 2022 that the rate of inflation in Massachusetts is outpacing the country in several categories, including gas, used vehicles and electricity. Unfortunately, the adjustment in the estate and gift taxes for 2023 aren’t going to provide much of a benefit to the majority of people.
Estate Taxes
Sadly, the Massachusetts estate tax exemption amount, which has been $1 million since 2006, isn’t being adjusted for inflation. However, the federal threshold of $12,060,000 in 2022 is being increased to $12,920,000 in 2023. This change in estate taxes will only affect very wealthy people since fewer than one percent of households in the U. S. have assets totaling more than $10 million. One thing to note is that in 2026, the plan is to cut this exemption in half.
Gift Taxes
The 2022 gift tax exclusion of $16,000 will go up to $17,000 for 2023. This will affect only people who give away more than $12.92 million in taxable gifts during their lifetime or at death, so again this isn’t going to impact many people. Keep in mind that this number is also planned be cut in half in 2026. While these gifts aren’t taxable in Massachusetts, they do count toward the Massachusetts estate tax exemption amount of $1 million, possibly causing some people’s estates to then be taxed. Remember, if your estate is valued at one dollar over $1M, your estate is taxed on the ENTIRE amount, not just the amount that is over.
