The Internal Revenue Service (IRS) has released its tax inflation adjustment figures for tax year 2025.
Annual Gift Tax Exclusion
Effective January 1, 2025, you will be able to make individual gifts of up to $19,000 in the calendar year (an increase from $18,000 in 2024) tax-free. In other words, giving more than $19,000 to any individual in 2025 means you may have to file a gift tax return. For a married couple filing jointly in 2025, the annual gift tax exclusion will be double that: $38,000.
Estate Tax Exemption
Meanwhile, the IRS has announced that the federal estate tax exemption will jump to $13,990,000 per individual in 2025, up from $13,610,000 million in 2024. Again, married couples’ exemption will be twice that, at $27,980,000 million. Over the course of your lifetime, you would therefore be able to give away up to $13,990,000 (as of 2025) before you owed a federal gift tax.
If the total worth of your estate falls below this amount, your estate will not owe federal estate taxes. (Note that state estate tax is a different matter, which varies depending on where you live.)
The estates of most Americans fall far below the current gift and estate tax thresholds. However, for affluent taxpayers who pass away in 2026 or later, these thresholds are on track to decrease by about half. As a result, a greater number of estates will become taxable. Tax bills could be higher going forward, too.
Note that the IRS will allow you to give away a total of $13,990,000 (as of 2025) during your lifetime before you owe a gift tax.
The End of the Tax Cuts and Jobs Act (TCJA) Is Approaching
At the end of 2025, the Tax Cuts and Jobs Act is slated to sunset unless Congress takes action. The sunsetting of the TCJA will have a significant impact on taxpayers. When the TCJA expires, the federal estate and gift tax exemptions will return to what they were in 2017 (around $5 million, with an adjustment for inflation). To avoid this, lawmakers would have to alter the exclusion limit prior to December 31, 2025.
Work With a Professional
Partner with your estate planning attorney sooner rather than later to strategize about how to plan ahead and take advantage of the current exemption amounts.
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