Good News on IRS 2023 Inflation Adjusted Lifetime Exemption Amount
I am writing this blog post on the morning of September 15 and happy to report I have all of my September 15 due-date returns done (other than a few that will be late due to client issues).
Now that we know the final August 2022 inflation numbers we have a good idea of what the inflation adjusted amounts will be for all of the tax provisions that are adjusted annually. Today, we will discuss how this might affect a farmer’s lifetime exemption amount. Other posts will deal with the estimated adjustments for other provisions.
The current lifetime exemption amount is $12,060,000 which means a married farm couple can be worth $24,120,000 and owe no federal estate tax. With certain discounts for lack of marketability and minority discount, this can easily approach $30 million that will escape federal estate tax.
This is for federal estate tax purposes only. Many farmers live in states that also impose a state estate tax. That tax can easily exceed any federal estate tax and this post will deal only with federal estate taxes.
The inflation adjustment for the estate tax exemption has a delay in implementation. The 2022 increase of approximately 3% was not based on calendar year 2021 inflation. Instead it was based on inflation for the twelve months ended August 31, 2021. The rapid increase in inflation that occurred after August 31, 2021 will be reflected in the 2023 increase. Any inflation increases for the period September 1, 2022 to December 31, 2022 will show up in the 2024 inflation amounts.
The current estimate for the increase in the 2023 exemption amount is $860,000 indicating the final amount for 2023 will be about $13 million and for married couples $26 million. This is the largest increase on record and is greater than the total lifetime exemption throughout history until 2001. 2001’s exemption amount was $675,000 and it jumped to $1 million in 2002.
The projections for the final 2025 number is around $14 million and if inflation stays high, the exemption could easily exceed that number.
This is very good news for farmers with taxable estates exceeding $20 million (a farmer owning 1,000 acres of good Iowa ground is over that number). Another $1.7 million of value can be shifted to your heirs free of estate tax plus the annual exclusion is expected to jump to $17,000 from the current $16,000 level (which was for one year).
These farmers should be discussing with their estate tax advisors how they can take advantage of this higher exemption and not let it go to waste.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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