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IRS Increases Estate and Gift Tax Exemptions for 2025

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“IRS Increases Estate and Gift Tax Exemptions for 2025” by Attorney Laura Curry (Audio)

Starting January 1, 2025, the Internal Revenue Service (IRS) raised the federal estate tax exemption from $13.61 million to $13.99 million and increased the annual gift tax exemption from $18,000 to $19,000.

What is the federal estate tax exemption, and how does it affect your estate plan? 

The federal estate tax is a tax the IRS imposes when you transfer property at your death.  It consists of an accounting of everything you own or have certain interests in at the date of death. The total of all these items is called your “gross estate.” These include cash and securities, real estate, insurance, annuities, business interests, and other assets.  As a result of the 2025 increases, if your gross estate is less than $13.99 million, you will not have to pay any federal estate tax.  However, if you die in 2025 and your assets are over the federal estate tax exemption, the IRS will impose a 40% estate tax on any assets you own over $13.99 million.

What is the gift tax in 2025?

Gift taxes work hand-in-hand with estate taxes.  Each year, the IRS allows taxpayers to give away a certain amount per recipient tax-free. In 2025, this figure is $19,000.  If you gift below the annual gift tax exemption, you will reduce your taxable estate by moving assets out of your name and preserving your federal estate tax exemption.  If you gift above the annual gift tax exemption, then your federal estate tax exemption will be reduced.  Let’s say you want to make a cash gift to your four children.  Under the 2025 gift tax laws, you can give each child up to $19,000 without having to pay any gift tax or report your gift to the IRS, and your federal estate tax exemption will be preserved.  On the other hand, if you make a large gift of $119,000 to only one child, you could transfer the first $19,000 without paying any gift tax, and the remainder would reduce your federal estate tax exemption by $100,000. Additionally, since your gift is above the annual exemption limit in 2025, you must report this gift to the IRS by filing a Form 709.

The federal estate and gift taxes are subject to change each year, and it’s important to stay up to date on the most recent estate and gift tax laws. This is even more important in 2025 as the federal estate tax exemption is scheduled to expire, or “sunset,” on December 31, 2025, unless Congress acts to extend it or make it permanent. If no action is taken, the exemption amount will revert to its pre-Tax Cuts and Jobs Act level of $5.6 million per individual, adjusted for inflation from 2017. There are estate planning opportunities that may allow individuals to take advantage of this unusually high exemption amount by utilizing certain irrevocable trusts that can remove assets from your gross taxable estate. It is important to consult with an estate planning attorney early in 2025 if you want to take advantage of this year’s exemption amount.

If you want to learn more about strategies to reduce the size of your estate and minimize estate taxes, reach out to the attorneys at Sinclair Prosser Gasior and schedule your consultation today.

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