IRS Announces Annual Inflation Adjustments for 2023

The IRS recently announced the 2023 annual inflation adjustments for over 60 tax provisions.  Most of these changes will apply to the calendar year 2023 tax returns that will be filed in 2024.

Income Tax Brackets

For married couples filing a joint return and single individuals, the chart below shows the marginal ordinary tax rate for each bracket of taxable income.  Taxable income is adjusted gross income minus allowed deductions (including itemized or standard deduction).

Taxable Income Taxable Income  
Single Married – Joint Marginal Rate
Under $11,000 Under $22,000 10%
$11,000 $22,000 12%
$44,725 $89,450 22%
$95,375 $190,750 24%
$182,100 $365,200 32%
$231,250 $462,500 35%
Over $578,125 Over $693,750 37%

Estates and Trusts will reach the top 37% tax bracket at only $14,450 of taxable income.

Capital Gains Rates 

The special income tax rates on qualified dividends and long-term capital gains range from 0% to 20%.  In 2023, the rate 0% for certain individuals with taxable income below $89,250 (married filing joint) or $44,625 (single).  That’s right, a married couple could have almost $90,000 of qualified income and pay $0 of Federal income tax.  The rate increases to 15% for those with taxable income above the 0% threshold but below $553,850 (married filing jointly) or $492,300 (single). Capital gains for those with income above the 15% threshold are taxed at 20%.

Annual Gift Exclusion

The annual exclusion for gift tax purposes increases from $16,000 in 2022 to $17,000 in 2023.

Estate and Gift Exemption

The estate and gift tax lifetime exemption increases from $12,060,000 in 2022 to $12,920,000 in 2023, or $25,840,000 total for a married couple.  Under current law, the exemption amounts are scheduled to cut in half after tax year 2025.

Standard Deduction

The standard deduction amounts will increase as follows:

  • $27,700 – Married filing joint
  • $13,850 – Single
  • $20,800 – Head of Household

Exclusion for Primary Residence

Unfortunately, the special exclusion of capital gains tax on the sale of your primary residence is not indexed for inflation.  The amounts have been fixed at $250,000 (single) and $500,000 (married filing joint) since 1997.

Click HERE for a link to a Journal of Accountancy article that provides more information about the inflation adjustments, or HERE to access the full text of Rev. Proc. 2022-38.

As always if you have questions, please contact your Dent Moses advisor.