Total Change In US Estate And Gift Tax By 2025 – IRS Makes It Official

With the 2025 tax season being prepared, it is important to know which taxes will increase and which ones will decrease, and, this year, there are good news for those who have to file estate and gift taxes.

What are gift taxes?

According to the Internal Revenue Service (IRS) “The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.”
It applies to property, money, free or discounted use of property in lieu of profit, sales for less than the appraised value of the object, interest-free or reduced-interest loans, etc. The intention behind the act does not need to be explicit for the action to be seen as a gift by the IRS.

Who needs to pay taxes on gift transfers?

In the case of gift taxes, the donor is generally the one responsible for paying the appropriate taxes. In some cases, the person receiving the taxes may offer to cover the amount, but this should always be done with the approval of a tax professional. Certain gifts like tuition or medical expenses you pay for someone, gifts to your spouse, gifts to a political organization for its use or gifts that are not more than the annual exclusion for the calendar year are not usually subjected to taxable rules.

What are estate taxes?

The IRS defines them as “The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.”

Of course this does not mean that everything you own is taxable, there are certain items that can be deducted from this list like mortgages, other debts, estate administration expenses, property that passes to surviving spouses and qualified charities, etc.. Your Gross estate minus these deductions will give your taxable amount.

Who needs to pay taxes on estate transfers?

The good news for most Americans is that most people will not file taxes for either of these reasons. The only reason someone would have to file estate and gift taxes are those whose amount exceeds the “basic exclusion amount”.

In the case of estate taxes “An estate tax return must be filed if the gross estate of the decedent (who is a U.S. citizen or resident), increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death, as shown in the table below.”

This “basic exclusion amount” is any amount below the tax threshold, which in 2024 sat at $13.61 million in 2024. In 2025 this amount has increased to $13.99 million per person in line with the rise of cost of living. But there are some bad news coming.

This amount is due to the implementation of the Tax Cuts and Jobs Act enacted by former president Donald Trump, and it expires in 2025, which means that the “basic exclusion amount” will go back to 2017 levels ($5,490,000 per person), adjusted for inflation. This may be a blow for some, but the taxes will most certainly help with funding some of the programs that have been struggling for years due to lack of federal funding.

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