“What is the soul of America?” – President Biden, January 16, 2023[1]
Dear friends, family, colleagues,
The powerful direction of Rev. Martin Luther King Jr. and activists before him inspired our President to say in recent remarks that “our job is to redeem the soul of America.” He invoked Dr. King’s “dream in which we’re all entitled to be treated with — my father’s favorite word — dignity and respect. A dream in which we all deserve liberty and justice.” The news we have to offer here is undramatic detail about tax and estate planning choices, but we hope it will enable you and yours to work toward justice, fairness, and much-needed community healing.
As we’ll discuss below, California took a substantial step toward justice for disabled and senior Californians with Medi-Cal eligibility reforms in 2022. The federal government raised the gifting limit and again increased the lifetime federal estate and gift tax exclusion amount. We also have a reminder for you about the importance of the homeowner’s exemption form.
Lastly, the SECURE Act 2.0 was signed into law on December 29, 2022 which mandated changes to employer-sponsored contribution plans and provided for increasing the required minimum distribution age etc. starting January 2023 and in the coming years. While we will not be breaking down the details below, please view a helpful publication by The CPA Journal regarding the SECURE Act 2.0 for more information.[2]
We wish you a fortuitous start to the 2023 Year of the Rabbit.
Federal Gifting Limit Increase
The annual federal gift tax exemption allows you to make limited gifts of assets without filing a Form 709 gift tax report that would count against your lifetime gift and estate tax exemption total. Beginning in 2023, the annual gift tax exemption increases from $16,000 to $17,000.[3] This amount applies separately to each giver (whether or not the giver’s spouse also makes gifts) and, for each giver, it applies individually to each person who receives gifts in 2023.
A friendly reminder to fill out an IRS Form 709[4] “United States Gift (and Generation-Skipping Transfer) Tax Return” during tax season if you made gifts to the same person during 2022 that added up to the $16,000 limit for 2022, or if your 2023 gifts to one person exceed $17,000.
Annual Federal Estate Exemption Threshold Increase
The IRS has announced an increase in the lifetime gift and estate tax exclusion amount for gifts made during your lifetime and assets transferred at your death. Beginning in 2023, the “Basic Exclusion Amount” gift and estate tax threshold increases from $12,060,000 to $12,920,000.[5] The limit will be increasing every year until 2026, when the limit will then drop to an inflation-adjusted amount above $5.49 million.
Medi-Cal Asset Limit Increase
Beginning July 1, 2022, Medi-Cal increased the asset limit for Non-Modified Adjusted Gross Income (Non-MAGI) Medi-Cal programs eligibility to $130,000 for single persons, with an additional $65,000 asset limit increase per household member, up to 10 household members maximum.[6] This limit applies to non-exempt assets such as cash savings in addition to exempt assets such as the covered person’s car or house. “Community spouses” of people who receive non-MAGI Medi-Cal care may keep the 2023 Community Spouse Resource Allowance amount of $148,620 in non-exempt assets in addition to the Medi-Cal spouse’s $130,000 limit.[7]
In the year 2024, if current California laws and federal permissions hold, the asset limit will be removed altogether – cause for celebration if it truly takes effect.[8]
However, these changes are to the asset limit only. Medi-Cal income limits remain unchanged.
Homeowner’s Exemption Form
If you live in a property that you own in California, you likely qualify for a $7,000 reduction in taxable value for your home, or possibly more if you are a disabled veteran. To qualify, the home must have been the owner’s principal place of residence on the lien date, January 1st.[9] For property tax reasons it is especially important for this claim to be made both before and promptly after any gift of a parent’s home to a child who will also reside in the home. You may want to file an exemption claim either if the $7,000 exemption doesn’t appear on your home’s property tax bill, or if the name(s) of the eligible person(s) might need updating – for example, after a death or a changed family arrangement about who lives at a property. Your county assessor’s website should provide its own version of the BOE-266 “Claim for Homeowners’ Property Tax Exemption.”[10] The deadline to file the claim form for first-time claimants is February 15 for that year. The deadline to notify the assessor that the exemption no longer applies is December 10.
__________________________________
We encourage everyone to share this news with friends and family. A warm thank you to all for being in touch with our office.
Sincerely,
Laurie Shigekuni, and all of us at Laurie Shigekuni & Associates.
This newsletter is general information only; it is not legal advice for any particular situation. Links are included as information only without any claim of affiliation or endorsement
[1] https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/01/16/remarks-by-president-biden-honoring-dr-martin-luther-king-jr/
[2] https://www.cpajournal.com/2023/01/27/first-look-at-the-secure-2-0-act-of-2022/
[3] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
[4] https://www.irs.gov/pub/irs-pdf/f709.pdf
[5] https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
[6] https://www.dhcs.ca.gov/services/medi-cal/eligibility/Pages/Asset-Limit-Changes-for-Non-MAGI-Medi-Cal.aspx; https://www.dhcs.ca.gov/services/medi-cal/eligibility/letters/Documents/21-31.pdf
[7] https://www.dhcs.ca.gov/services/medi-cal/eligibility/letters/Documents/23-01.pdf
[8] https://www.dhcs.ca.gov/services/medi-cal/eligibility/letters/Documents/22-25.pdf
[9] https://www.boe.ca.gov/proptaxes/homeowners_exemption.htm
[10] https://www.boe.ca.gov/proptaxes/countycontacts.htm