Federal Gift and Estate Tax Exemption Nearly $14 Million Per Person for 2025

Everyone enjoys a lifetime exemption from federal gift and estate tax. The exemption reflects the amount of assets that the federal government allows an individual to give away during life or at death without being subject to federal gift or estate tax—whatever part of the exemption you don’t use during your lifetime to cover taxable gifts is available as an exemption from estate tax at your death.

As part of the 2017 Tax Cuts and Jobs Act (TCJA), the gift and estate tax exemption (which is indexed for inflation) was doubled for tax years 2018-2025. This means that the exemption will increase in 2025 to $13.99 million for an individual, a significant increase from $13.61 million in 2024, which means a married couple will now have $27.98 million of available exemption, up from $27.22 million in 2024. Clients who have already used up their entire exemption as of 2024 may now have a little more to use and may wish to consider making additional gifts in 2025.

One caveat—under the TCJA, the doubled gift and estate tax exemption is temporary, and starting in 2026 the exemption is scheduled to revert back to where it would have been before the TCJA doubled it-- about $7 million per person when adjusted for inflation. It is unclear right now whether Congress will simply let the law sunset or if it will take action to extend the larger exemption or even make it permanent. Stay tuned—and please contact us to discuss if now is the right time for you to take advantage of this high exemption amount.

A reminder of why making gifts during life is so valuable in reducing estate tax at death:  not only are the gifted assets removed from the donor’s taxable estate, but also the assets’ future income and appreciation avoid gift and estate taxes.  But note:  while the benefit is clear that making lifetime gifts can reduce exposure to both state and federal estate tax at death, there can be negative income tax consequences to making a gift.  Appreciated assets that remain exposed to estate tax will receive a “step up in income tax basis” at death, meaning that the assets can be sold after death with no capital gains tax on the appreciation that occurred during the deceased person’s lifetime.  Assets given away during lifetime to escape exposure to estate tax will not receive a step up in income tax basis, and when the asset is sold after the former owner’s death there will be exposure to capital gains tax on the appreciation that occurred during the deceased person’s lifetime.  Careful consideration must be given to whether avoiding estate tax is better (or not) than avoiding capital gains tax.