2022 Projected Applicable Exclusion Amounts

Take-Away: Each August the IRS identifies the inflation factor for the next year’s transfer tax exemptions. A rough estimate of those 2022 amounts are now able to be calculated using that inflation factor.

Background: Every August the IRA identifies the ‘Chained Consumer Price Index’ (C-CPL) which is then used to calculate the federal transfer tax exemptions for the next calendar year. This August’s inflation rate can now be used to closely estimate the transfer tax exemptions for 2022, assuming that Congress does not decide to change the exemptions as part of the 2022 Budget process.

2022 Projected Exemptions and Exclusions: Those adjusted amounts for 2022 will probably come very close to the following amounts (again, assuming that Congress does not act in the interim to change the existing exemption amounts,)

2022 Applicable Exemption Amount: An individual’s applicable exemption amount would increase from $11,700,000 to $12,060,000.

2022 Gift Tax Annual Exclusion Amount: An individual’s federal gift tax annual exclusion amount would increase from $15,000 to $16,000.

2022 Annual Gift Tax Marital Deduction for Non-Citizen Spouse’s: The amount of the federal gift tax marital deduction for a non-citizen spouse would increase from $159,000 to $164,000.

2022 Special Use Valuation Reduction: The reduction in the estate tax value of a decedent’s closely held business interest under IRC 2032A would increase from $1,190,000 to $1,230,000.

2022 2% Amount for Installment Payment of Estate Taxes: The amount of the deferred federal estate tax associated with a decedent’s closely held business that accrues interest only for four years, after which the federal estate tax is then paid in 10 installments under IRC 6166 would increase from $1,590,000 to $1,640,000.

Trust and Estate Highest Marginal Federal Income Tax Bracket: In 2021 a trust or estate that accumulated income was subject to the highest marginal federal income tax bracket (37%) when the trust or estate’s accumulated income exceeded $13,050 for the year. That amount subject to the highest federal marginal income tax brackets for trusts and estates in 2022 would increase to $13,450.

Conclusion: Recall that President Biden has proposed a reduction in the federal applicable exclusion amount to perhaps $6.0 million per person, yet the House Ways and Means Committee’s tax proposal presented about 10 days ago leaves an individual’s applicable execlusion amount at $11.7 million. If Congress does not touch the federal estate and gift tax exemption amounts, the above identified exemption amounts will apply for 2022. Now we wait and see what Congress does over the next few weeks.