The IRS has released new inflation-adjusted figures that can impact your estate and gift planning. These numbers seem like a lot to sift through, but understanding them could make a big difference in your financial future. Let’s break down the critical updates and why they matter.
Basic Exclusion Amount: $13.99 Million
The total amount you can transfer tax-free is $13.99 million, either during your life or at your passing. For 2025, the individual exclusion is $13.99 million—up from $13.61 million last year. However, if you’re married, the amount doubles and you and your spouse can transfer nearly $28 million tax-free. This is important for anyone planning to pass along significant assets. This exclusion is set to sunset back down to $5 million per individual at the end of 2025, so it is crucial to understand what that means for your individual planning this year if you have more than a few million dollars.
Gift Tax Annual Exclusion: $19,000
Each year, you can give a certain amount to anyone—children, grandchildren, friends—without impacting your lifetime exclusion or creating any tax obligations. For 2025, this amount rose to $19,000 per recipient, up from $18,000 last year.
Gift Tax Annual Exclusion for Non-Citizen Spouse: $190,000
If your spouse is not a U.S. citizen, you’ll want to pay attention to this number. The annual exclusion for gifts to a non-U.S. citizen spouse is now $190,000 for 2025, an increase from $185,000 last year. This limit allows for a bit more flexibility in gift-giving without tax consequences. Becoming a U.S. citizen would allow that exclusion to rise to $13.99 million.
Special Use Valuation Reduction Limit: $1.42 Million
If your estate includes farmland or a family business, you might be able to value it at its current use rather than its total market value, reducing estate taxes. For 2025, this reduction limit has risen to $1.42 million, allowing for potentially substantial tax savings.
IRC Section 6166 2% Interest Amount: $1.9 Million
Under Section 6166, estates with family-owned businesses can defer some estate taxes and pay them over time. The 2% interest rate will now apply to the first $1.9 million of a business’s value, up from $1.85 million last year. This change could help families keep their businesses running smoothly while managing tax obligations.
Maximum Income Tax Rate Threshold for Estates and Trusts: $15,650
For estates and trusts, the top income tax rate of 37% kicks in at $15,650 of income in 2025, up slightly from last year. Knowing this threshold can help with income planning for any trusts you manage, as the tax rate is more compressed than for individuals.
So, What Does This Mean for You?
These new adjustments create more opportunities to transfer wealth tax-free, making 2025 a great year to think about your gifting and estate plans. However, keep in mind that these higher exclusions will likely revert to around $5 million (adjusted for inflation) after 2025 without new legislation.
If you’re unsure how these changes might impact you or what steps to take, checking in with your financial team is always a good idea. They can help you understand what these adjustments mean for your plans and ensure you maximize the available opportunities.
