By law, the IRS periodically adjusts the amount of many Federal tax deductions, exemptions and credits to reflect increases in the cost of living. The IRS has recently announced 2012 adjustments.
With respect to the estate and gift tax:
- The Federal Estate Tax Exemption increases from $5,000,000 (the 2011 exemption) to $5,120,000 for persons who die in 2012. If Congressional gridlock continues, however, the exemption decreases to $1,000,000 in 2013. The Minnesota Estate Tax Exemption remains at $1,000,000.
- The deduction for special use valuation method of qualified real property increases in 2012 to $1,040,000, a $20,000 increase.
- The gift tax annual exclusion remains at $13,000. The IRS adjusts the gift tax annual exclusion in $1,000 increments, and the IRS is likely to increase the exclusion to $14,000 in 2013 or 2014.