Tax Guru – Ker$tetter Letter

Part of the year-end “Holiday Season” in the US is the annual release by IRS of its calculations for the next year inflation adjustments for the many items in the Internal Revenue Code (IRC) that require indexing to the cost of living.

IRS Press Release

IRS Revenue Procedure 2023-34 With Details (30 Page PDF)

Wall Street Journal Summary (11-9-2023)

I want to again voice my long running complaint that there are still several items in the IRC that are dollar amounts that do not get indexed for inflation. The one that I have been seeing all too frequently is the Section 121 exclusion of gain from sales of primary residences. When this was enacted into law in 1997, $250,000 of profit per person was considered to be quite generous.

Now, 26 years later with huge increases in the value of real estate, that fixed dollar exclusion amount isn’t giving much protection to many home sellers. Of course, this wouldn’t be as big of a problem if IRS would allow the cost basis of assets to be indexed for the inflation experienced during the holding period. I have been harping about this injustice since the 1980s, but it’s never gotten as much traction as it needs with our rulers.

Gift Tax Exclusion Increased Again
Besides Income tax related increases, a very important change is the amount of gifts that can be given each year without the need to file a Gift Tax return (Form 709). While the other items that are indexed are allowed to increase by odd amounts each year, the Gift Tax exclusion can only be increased when the cumulative rate of inflation has justified an even thousand dollar bump up. Many people use this limit as an integral part of their long term Estate and Gifting strategies.

This has normally taken three to four years between increases. However, that pace has changed in recent years. The official inflation rate has been so high since January 2021 that, for the third year in a row, we are looking at another $1,000 increase in the annual Gift Tax exclusion. It was $15,000 for 2021 based on the 2017-2020 cost of living. It then increased to $16,000 for 2022, $17,000 for 2023 and it will be $18,000 for 2024.