Tax Breaks Increase for Gifts, Estates and Capital Gains in 2023

Smiling old woman with a lot of extra money
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The income threshold that triggers several important taxes is changing in 2023.

The IRS made changes to account for inflation. The moves will mostly impact wealthy taxpayers, although some people in the middle class are also likely to benefit.

Below are definitions of the three main taxes affected and an explanation of what will be new in 2023.

What is gift tax?

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When you give someone some money or other property, it’s considered a gift — whether you meant it or not. Such gifts are taxable. Here’s how the IRS defines gift tax:

“Gift tax applies to gift transfers of all types of property. You give a gift if you provide property (including money), or the use or income from the property, without expecting to receive something of at least equal value in return. If you sell something for less than its full value or if you make an interest-free or low-interest loan, you may be giving away a gift.”

Usually, the person giving the “gift” is responsible for paying taxes. In 2022, giving someone property whose value exceeds $16,000 makes the transfer subject to gift tax.

There are several situations where gift tax does not apply, including:

  • Gifts for couples
  • A gift that pays for someone’s college or medical expenses
  • Gifts to political organizations intended for their use

Gift tax exemption for 2023

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In 2023, you can give a little more without triggering the gift tax. The new limit is $17,000, up from $16,000 for 2022. Until you exceed that limit, you won’t owe any taxes.

Limits apply “per finish.” So, for example, you could give three gifts of $17,000 to three separate people in 2023 and not trigger taxes.

What is land tax?

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Property taxes are levied on property transferred from you to someone else after your death. Often underestimated as a “death tax,” the federal land tax will reach $12.06 million in 2022. That means very few people will pay it.

However, for those who are wealthy and intend to pass their wealth on to loved ones, the estate tax is one of the most vexing taxes in federal law.

Property tax exemption for 2023

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The estate tax exemption is $12.92 million for 2023, up from $12.06 million in 2022. This means that until your estate exceeds $12.92 million, you won’t owe any taxes.

Even if you are running away from paying the federal government, your heirs should be wary of the tax collectors in the state where you lived and died. Many states have their own property taxes, as we noted in “17 States With Inheritance or Property Taxes — or Both.”

What is capital gains tax?

Senior couple standing in front of their house
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Most likely you are sitting on a pile of capital assets. These are things that you own either for personal use or for investment purposes. Among the many examples of capital assets are:

  • A house
  • Household furniture
  • Stocks and bonds

When you sell one of these assets, you usually owe capital gains tax on “the difference between the adjusted base in the asset and the amount you realized from the sale,” according to the IRS. In most cases, this “customized base” is the price you pay for the item.

Generally, you must hold a capital asset for more than one year before selling to qualify for a long-term capital gains level. It’s only 15% for most people, although it’s higher in some situations, especially for those whose taxable income crosses a certain threshold.

If you sell capital assets before one year, you’re stuck with short-term capital gains, and you’re usually paying much higher taxes, depending on your income.

Maximum capital gain rate for 2023

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By 2023, the income thresholds for capital gains rates of 0%, 15% and 20% increase. That means you’ll be able to make more money before capital gains tax rates affect you.

The income threshold for long-term capital gains is as follows:

single filer

  • 0% — taxable income up to $44,625
  • 15% — taxable income from $44,626 to $492,300
  • 20% — taxable income of $492,301 or higher

Married filed together

  • 0% — taxable income up to $89,250
  • 15% — taxable income from $89,251 to $553,850
  • 20% — taxable income of $553,851 or higher

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