In a recent video, I covered updates from the Treasury regarding the 2025 estate tax exemptions, but today, I want to dive into updates on the 2025 gift tax exemptions and discuss how the estate and gift taxes work together. Let’s break this down. The Treasury currently allows you to pass assets, up to a value of $13.61 million, free of any estate tax. This isn’t just a transfer at death; it’s a lifetime transfer limit. In 2025, this amount will increase to $13.99 million. However, this could change in 2026 due to the 2017 Tax Cuts and Jobs Act, which might affect the current laws (I have a separate video on this topic if you’re interested).
The estate tax exemption covers transfers throughout your lifetime, with the IRS monitoring any gifts that exceed a certain value. This is where the gift tax plays a crucial role. When you make a gift over a set threshold, that amount starts to count against your lifetime estate tax exemption. For example, as of today, you can transfer up to $13.61 million in assets throughout your life without estate tax. If you make a gift under $18,000 this year, you don’t need to report it, and it won’t impact your lifetime estate tax exemption. However, in 2025, this exemption will increase to $19,000 per gift. You can make multiple gifts under this threshold to different individuals or trusts, and they won’t require IRS reporting. If a gift exceeds $19,000, you’ll need to report the full amount to the IRS, which then deducts it from your lifetime exemption.
A common misconception is that receiving a gift incurs income tax, but this isn’t the case. Only gifts over the exemption limit are reported to the IRS, and even then, there’s no immediate tax; it’s simply a reporting requirement. The estate tax is ultimately assessed only after you pass away. With both the estate and gift tax exemptions increasing annually, the federal estate tax exemption will reach $13.99 million per person in 2025, and the gift tax exemption will rise to $19,000 per gift.