November 13, 2023
IRS increases standard deductions and exclusions for 2024, including estate and gift tax
The IRS has increased (Revenue Procedure 2023-34) the estate tax basic exclusion and gift tax annual exclusion, as well as the income tax marginal brackets, standard deduction and Alternative Minimum Tax (AMT) exemption, for 2024. These changes generally apply for tax returns filed in 2025.
Increases for 2024
The basic exclusion amount for determining the amount of the unified credit against estate tax under IRC Section 2010 will be $13,610,000 for decedents who die in 2024, a $690,000 increase from 2023.
The annual gift tax exclusion increases to $18,000 for 2024, up $1,000 from 2023. Also, for calendar year 2024, the first $185,000 of gifts to a spouse who is not a US citizen (other than gifts of future interests in property) will not be included in the annual total of taxable gifts under IRC Sections 2503 and 2523(i)(2).
The marginal income tax brackets have increased by approximately 5.4% for each type of taxpayer. The standard deduction for couples filing jointly will be $29,200, up $1,500 from 2023; for single taxpayers, the 2024 standard deduction is $14,600, up $750 from 2023; heads of household may claim a $21,900 standard deduction, $1,100 more than for 2023. The AMT exemption for 2024 is $85,700 and begins phasing out at $609,350 ($133,300 for married couples filing jointly, phasing out beginning at $1,218,700). The AMT exemption for 2023 was $81,300, phasing out at $578,150 ($126,500 for married couples filing jointly, phasing out beginning at $1,156,300). The foreign earned income exclusion for 2024 is $126,400, up $6,400 from 2023.
The annual adjusted rates are based on the annual Changed Consumer Price Index for All Urban Consumers (C-CPI-U) as of August 31. Before enactment of the Tax Cuts and Jobs Act of 2017, these adjustments were based on the Consumer Price Index (CPI). Generally, the C-CPI-U lags the CPI because it considers the substitutions that consumers make in response to changes in relative prices. However, as of August 31, the annual CPI and C-CPI-U were both 3.7%, significantly lower than last year's CPI of 8.3% and C-CPI-U of 8%, which explains the smaller increases in the annual inflation adjustments.
The increase in the gift tax annual exclusion and the basic exclusion will allow taxpayers to give more of their estates away without incurring gift tax, thereby ultimately reducing any estate tax that may be due upon their deaths. For planning purposes, the increase in the basic exclusion over last year amounts to $690,000 and allows for additional leveraging of estate-planning strategies to minimize a taxpayer's estate. This must be balanced against the increase in interest rates, which has reduced the effectiveness of these estate-planning strategies.
The increase in the income tax marginal brackets, standard deduction and AMT exemption will mean more money in taxpayers' paychecks, but they will still need to wait until 2024 for that extra money.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor