Update: IRS Issues Inflation Adjusted Amounts for 2023

Update: IRS Issues Inflation Adjusted Amounts for 2023

The IRS generally makes inflation adjustments to certain federal income tax brackets and limitations every year - and has done so again for 2023. Due to the recent high inflation, most of the adjustments are higher than in prior years.

Here is a summary of some of the more significant changes for 2023. For purposes of this article, only amounts that have changed from 2022 to 2023 will be referenced. Items which remained the same (i.e., personal exemption for tax remains at 0) will not be shown.

Also, new for 2023, The Inflation Reduction Act (PL 117-169) extended certain energy-related tax breaks, and indexed for inflation the energy-efficient commercial buildings deduction beginning with tax year 2023.

For tax years starting in 2023, the applicable dollar value used to determine the increased deduction amount for certain property under Code Sec. 179D(b)(3) is $2.68 increased (up to $5.36) by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by more than 25%.

Individual Brackets and Rates

Standard Deduction Amounts

AMT Exemption Amounts

Capital Gains Brackets and Rates

* The AGI ranges for the 15% rate for capital gains and dividends remains high

199A / Qualified Business Income Deduction
If your taxable income exceeds the following amounts the deduction will be limited:

Kiddie Tax
The Kiddie Tax threshold is increased to $1,250 from $1,150.

Estate and Generation Skipping Tax (“GST”)
For 2023, the Estate and GST lifetime exemption amounts have increased to $12,920,000.
The annual exclusion for gifts is $17,000 in 2023 up from $16,000.

Section 179 Deduction
The amount allowable to be expensed under Code 179 will be $1,160,000 with a phaseout threshold of $2,890,000 when eligible property is placed in service.

Excess Business Loss Deduction
For 2023, the threshold for excessive business losses is now losses exceeding $578,000 (married filing jointly) and $289,000 for all other filers.

Conclusion
As indicated above, these adjustments are made every year, so the amounts may not seem much different than normal, but the changes for 2023 are somewhat higher due to the high inflation this year. The 2023 adjustments reflect increases in the Consumer Price Index for All Urban Consumers (CPI-U) from the third quarter of 2021 to the third quarter of 2022. Using this measure, inflation reached its highest level since indexing began, If the worst of inflation is behind us, then it may be likely that next year’s inflation adjusted amounts will be lower.

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Article prepared by Sean McGuire.