The 2023 Exemption Jumps to $12.92M: A Late-2022 Gifting Window Before the 2026 Sunset

Key takeaways

• Rev. Proc. 2022-38 set the 2023 federal basic exclusion amount (BEA) at $12,920,000 per individual — an increase of $860,000 from 2022.
• The 2023 annual gift tax exclusion increases to $17,000 per donee, up from $16,000 in 2022.
• The generation-skipping transfer (GST) tax exemption for 2023 is also $12,920,000 — matching the basic exclusion.
• Under current law, both the basic exclusion and GST exemption are scheduled to revert to approximately $5–6 million per individual (as inflation-adjusted) after December 31, 2025, when the TCJA's temporary exemption increase sunsets.
• The IRS confirmed in 2019 (Rev. Proc. 2019-13, later finalized in T.D. 9884) that gifts made under the current higher exemption will not be "clawed back" if the exemption decreases — but this protection applies only to gifts actually made, not to exemption amounts held in reserve.

The exemption figures for planning purposes

• Basic exclusion amount: $12,060,000
• Annual exclusion per donee: $16,000
• GST exemption: $12,060,000

• Basic exclusion amount: $12,920,000
• Annual exclusion per donee: $17,000
• GST exemption: $12,920,000

The combined exemption available to a married couple making joint gifts is twice the individual exemption — $24,120,000 in 2022 and $25,840,000 in 2023. Gift-splitting elections allow one spouse's gifts to be treated as made one-half by each spouse.

The sunset: what is actually at stake

The TCJA doubled the basic exclusion amount effective January 1, 2018, from its pre-2018 level of approximately $5.49 million (as inflation-adjusted for 2017). That increase was structured as temporary — it sunsets after December 31, 2025, reverting to the pre-TCJA level with inflation adjustments applied from 2017 forward.

Based on current inflation trajectory, the post-sunset exemption is commonly estimated at approximately $6–7 million per individual. The spread between the current exemption (~$12.06 million in 2022, $12.92 million in 2023) and the post-sunset estimate is the amount of gifting capacity that exists today and may not exist after December 31, 2025.

The anti-clawback regulation finalized in November 2019 (T.D. 9884) confirms that if a taxpayer makes a taxable gift during the elevated-exemption period and then dies after the sunset when the exemption has decreased, the estate tax calculation will use the higher of the exemption applicable at death or the exemption used during the gifting period. This protection is significant: it means that gifts made under the current elevated exemption lock in that exemption permanently for the amounts transferred, regardless of what happens to the statutory rate in 2026.

But the protection extends only to gifts actually made. An individual who intends to make large gifts before the sunset but delays will not receive any benefit from the current elevated exemption if death occurs after the sunset and the gifts were never made.

The late-2022 planning context

For individuals with taxable estates in the range that makes the sunset relevant — roughly those with net wealth between $6 million and $25 million per individual, where the exemption level is the marginal planning variable — late 2022 presents the following specific window:

2022 annual exclusion gifts. A $16,000-per-donee gift to each family member, completed by December 31, 2022, uses the 2022 annual exclusion amount. Beginning January 1, the annual exclusion rises to $17,000 — but 2022 annual exclusion gifts, if they are going to be made at all, should be made before year-end.

Larger taxable gifts using exemption. Gifts in excess of the annual exclusion use some portion of the basic exclusion amount. For individuals planning large lifetime transfers — irrevocable trusts, family limited partnership interests, direct gifts — the planning horizon is the 2025 sunset, not December 31, 2022. But the mechanics of making large gifts often take time to execute properly: trust drafting, property valuation, transfer documentation. Late-2022 is a reasonable time to begin the planning process for gifts intended to be completed before 2025.

GST planning. Transfers to grandchildren or into trusts for grandchildren use GST exemption as well as gift tax exemption. The GST exemption rises with the basic exclusion and is subject to the same 2025 sunset. Irrevocable dynasty trusts funded before the sunset lock in current GST exemption for the amounts transferred.

Frequently asked questions

If I give assets away before 2026, will I lose the ability to use the income from those assets?

Yes — an irrevocable gift transfers ownership. The grantor no longer controls the asset or receives its income (unless specific retained interest structures are used, each of which has its own tax consequences). Large gifts should be made only after the economic and family planning implications are fully understood, not solely for tax reasons.

Does the sunset affect the step-up in cost basis at death?

No. The § 1014 basis step-up rule is separate from the estate tax exemption. Assets held at death receive a basis equal to fair market value at the date of death regardless of the estate tax result.

What happens if Congress extends the current exemption levels before 2026?

If the elevated exemption is made permanent, the urgency of making gifts before the sunset disappears. Planning should account for this possibility without being dependent on it. Gifts made under the current elevated exemption remain under the anti-clawback protection regardless of what Congress does.

Bottom line

The $860,000 increase in the 2023 basic exclusion is the largest since the TCJA took effect, and it expands the gifting capacity available before the scheduled 2026 sunset. For individuals with estates that will be materially affected by the sunset, the planning process — if it has not already begun — should start now.