estate tax exclusion, image of well-dressed middle-aged man

IRS Releases Revised 2025 Estate and Gift Tax Exclusions

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estate tax exclusion, image of well-dressed middle-aged manThe estate tax exclusion is a set dollar amount that can be transferred tax-free when an estate is being administered. Each year, there are inflation adjustments, and the Internal Revenue Service has announced the figures for 2025. Let’s take a look at the details.

2025 Federal Estate Tax Exclusion

In 2017, the exclusion was $5.49 million, but the Tax Cuts and Jobs Act was passed at the end of that year. One of the provisions in the measure essentially doubled the estate tax exclusion, and it was indexed for inflation in 2018. During that year, the exclusion was $11.18 million.

That level has been retained since then with ongoing inflation adjustments. During 2024, the exclusion has been $13.61 million, and it is going up to $13.99 million in 2026.

Spousal Considerations

There are some provisions that apply to married couples. Since 2011, the estate tax has been portable between spouses. This means that a surviving spouse can use the exclusion that was allotted to their deceased spouse.

The unlimited marital deduction can be used to transfer any amount of property to your spouse tax-free with one caveat. This deduction is only available to American citizens, but there is an estate tax efficiency strategy for noncitizen spouses.

Federal Gift Tax

When the estate tax was initially enacted in 1916, there was no gift tax. As a result, people could just give gifts while they were living to avoid taxation. This window of opportunity was closed in 1924 when the gift tax was enacted.

It was repealed in 1926, but the gift tax was reenacted in 1932. This tax has been a fact of life since then, and the gift tax and the estate tax were unified by the Tax Reform Act of 1976.

Because of this unification, the $13.61 million exclusion we have this year is a unified exclusion. This exclusion applies to large lifetime gifts along with the estate that will be transferred after your passing.

2025 Annual Gift Tax Exclusion

Aside from the multimillion-dollar unified exclusion, there is a separate annual gift tax exclusion. It can be used to give a certain amount to an unlimited number of recipients each year with no tax consequences.

This year, the annual gift tax exclusion has been $18,000, and it is going up to $19,000 in 2025. Since this is a per person exclusion, a married couple could gift up to $38,000 to any number of people in 2025 tax-free.

There is also an educational gift tax exclusion. If you want to pay school tuition for others, you can do so without being taxed. This exclusion applies to tuition only, but you could use your annual exclusion to provide additional support.

Finally, there is a medical exclusion as well. You can pay medical bills for others free of taxation, and this includes the payment of health insurance premiums.

State-Level Estate Taxes

While we are on the subject, we should share some information about state-level taxes. There are a dozen states in the union that have state-level estate taxes, and the District of Columbia has an estate tax.

In these states, the exclusions are typically lower than the federal exclusion. We do not have an estate tax in the great state of Texas, and that’s the good news.

The bad news is that you could be exposed to a state-level estate tax as a Texan. If you own valuable property in one of the states with an estate tax, it will apply to your estate if its value exceeds the exclusion in that state.

For your information, these are the states with state-level estate taxes:

  • Washington
  • Oregon
  • Minnesota
  • Illinois
  • Connecticut
  • Vermont
  • Rhode Island
  • Massachusetts
  • New York
  • Maryland
  • Maine
  • Hawaii

State-Level Inheritance Taxes

It would be logical to assume that the term “inheritance tax” is another way of referring to an estate tax. In fact, this is not the case.

As we have explained, an estate tax is levied on the entirety of an estate. An inheritance tax can be applied to transfers to each individual inheritor when an estate is being administered.

There are only five states in the union that have inheritance taxes: Pennsylvania, Maryland, Kentucky, New Jersey, and Nebraska. Once again, one of these taxes could apply to you as a Texan if you inherit property that is located in one of these states.

Estate Tax Efficiency Strategies

If you are exposed to the federal estate tax, there are things that you can do to ease the burden. When you take the right steps in advance, you can position your assets wisely to preserve your legacy.

Need Help Now?

Learning is great, but at some point, it is time to take action to put a plan in place. If you are there, our doors are open, and we would be glad to help.

There are different approaches that can be taken when you’re planning your estate. When you work with our firm, we will learn about your situation and your objectives. Recommendations will be made based on the circumstances so you can make fully informed decisions.

At the conclusion of the process, you will emerge with a tailor-made plan that is ideal for you and your family. To set the wheels in motion, call our office at 817-899-3286 or send us a message through our contact page.

Brandon McGee
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