LawFlash

IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2025

24. Oktober 2024

The US Internal Revenue Service (IRS) has announced that the annual gift tax exclusion is increasing in 2025 due to inflation. The exclusion will be $19,000 per recipient for 2025—the highest exclusion amount ever.

The annual amount that one may give to a spouse who is not a US citizen will increase to $190,000 in 2025. In addition, the estate and gift tax exemption will be $13.99 million per individual for 2025 gifts and deaths, up from $13.61 million in 2024. This increase means that a married couple can shield a total of $27.98 million without having to pay any federal estate or gift tax. For a couple that has already maxed out lifetime gifts, this means that they may now give away another $760,000 starting in 2025.

ANNUAL GIFT TAX EXCLUSION

Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2025, $19,000) per recipient tax-free without using up any of the taxpayer’s lifetime gift and estate tax exemption (in 2025, $13.99 million). For married couples, this means that they can give $38,000/year per recipient beginning next year.

For example, if a married couple has three children and five grandchildren, they may transfer $304,000 in 2025 to their descendants without touching their combined $27.98 million gift tax exemption, thus allowing them to transfer further substantial assets gift tax-free. Not only are the assets removed from the taxpayers’ taxable estates, the assets’ future appreciation also avoids gift and estate taxes.

GIFTS TO NON-US CITIZEN SPOUSE

Generally, spouses who are both US citizens may transfer unlimited amounts to each other without incurring any gift tax, as any assets in excess of the couple’s combined estate tax exemption ($27.98 million in 2025) will be taxed at the death of the surviving spouse, and transferring assets to the survivor only defers the tax that the IRS will eventually collect.

Gifts to a non-US citizen spouse, however, are limited. Since a non-US citizen spouse may not be subject to the US estate tax, one cannot transfer unlimited assets to a non-US citizen spouse since that transferred wealth could potentially avoid US estate taxation upon the non-US citizen spouse’s death.

Thus, when the recipient spouse is not a US citizen, and regardless of whether the non-US citizen spouse is a resident or nonresident of the United States, the amount of tax-free gifts is limited to an annual exclusion amount.

For calendar year 2025, the first $190,000 of gifts to a spouse who is a non-US citizen are not included in the total amount of taxable gifts.

LIFETIME ESTATE AND GIFT TAX EXEMPTION

If an individual gifts an amount that is above the annual gift tax exclusion, a portion of the individual’s lifetime gift tax exemption ($13.99 million in 2025) will be used. The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate tax-free.

If an individual makes gifts in excess of the annual gift tax exclusion, a gift tax return will be due on April 15 the following year to report the gift (and track the amount of the lifetime exemption that has been used).

It should be noted that although the IRS has announced that the lifetime estate and gift tax exemption will increase to $13.99 million in 2025, under current law, that amount will be decreased by half at the start of 2026.

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Authors
Sara A. Wells (Boston)