The Internal Revenue Service has announced the increases in the annual gift tax exclusion and the lifetime estate and gift tax exemption for calendar year 2025.
What are Gift Tax Exclusions?
The annual gift tax exclusion allows taxpayers to transfer gifts to unlimited donees without experiencing gift taxes up to a designated annual amount. The lifetime estate and gift tax exemption provides the limit for lifetime gifts as of the date of the gift or date of death before incurring a gift or estate tax liability.
What’s Changing?
For the 2025 tax year, the annual gift tax exclusion is increased by $1,000 to a total of $19,000. The exclusion covers gifts an individual makes to each donee per year. Married taxpayers can combine their gift tax exclusion as they can share their two annual exclusions. As an example, married taxpayers with three children could potentially transfer $38,000 a year to each child or a total of $114,000 without incurring any gift taxes.
The annual gift tax exclusion is also an important consideration for estate planning purposes. Taxpayers can make gifts up to that amount before utilizing any of their lifetime estate and gift tax exemption. The value of any gifts in excess of the annual gift tax exclusion would then be subtracted from the lifetime exemption. As the lifetime exemption gets used over the taxpayer’s lifetime, the amount that can be excluded from the taxable estate upon death also decreases. For 2025, the lifetime exemption will increase by $380,000 to $13,990,000. The total available to a married couple will be $27,980,000 in 2025.
Questions?
If you have any questions regarding estates, gifts, or any topics in this area, give us a call at (401) 921-2000, or fill out our contact form.