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IRS Updates Estate and Gift Tax Limits for 2016

November 05, 2015

For wealthy individuals and couples looking to leave a tax-free inheritance, the individual estate and gift tax limit has increased by $20,000.

The IRS has just announced the estate and gift tax limits for the New Year, which are indexed for inflation annually. For 2016, an individual is able to leave $5.45 million ($10.9 million for married couples) to his/her heirs without being tacked with federal estate or gift tax. This is up from the 2015 limit of $5.43 million per individual.

Changes for 2016

Tax free inheritances of $5.45 million can be made in 2016, and for high net worth individuals trying to cut down their estates to stay below the threshold, this $20,000 increase is important. The top tax rate on amounts that exceed the exemption limit is 40% for 2016.

What about married couples?

For married couples, each spouse gets his/her own exemption, meaning that in 2016, couples can give away a combined total of $10.9 million tax free ($5.43 million each), a $40,000 increase from last year.

Will the annual gift tax exclusion change for 2016?

No, the annual gift exclusion remains at $14,000 for the New Year. Only the lifetime gift tax exemption is increased. You are able to give away $14,000 to as many individuals as you want. For married couples, they can make a combined $28,000 of contributions to an indeterminate number of individuals.

Keep in mind that making the gifts during your lifetime means that you must keep track of all your taxable gifts (over and above the annual exclusion gifting), since they count against the amount of the eventual estate tax exemption.

For more details on the changes, refer to IRS Revenue Procedure 2015-53.

Questions? Contact any member of our Tax Services Team.

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