The annual gift tax exclusion is $18,000 for 2024 and will be $19,000 in 2025. The unified estate and gift tax exclusion amount, $13,610,000 for gifts made and decedents dying in 2024, will be $13,990,000 for gifts made and decedents dying in 2025.
In 2024, because of the portability rules, if a deceased spouse so elects, a surviving spouse could apply $27,220,000 against any tax liability arising from subsequent lifetime gifts and transfers at death.
The estate tax exclusion amount is set to revert to $5 million, adjusted for inflation, in 2026 with the expiration of the Tax Cuts and Jobs Act. Thus, unless the sunset date is extended, or the increased exclusion amount is made permanent, in 2026 the exclusion amount will reduce to approximately half of what it currently is.
Annual gift tax exclusion: For 2024, up to $18,000 of gifts made by a donor to each donee is excluded from the amount of the donor’s taxable gifts. A gift that qualifies for the exclusion is not subject to gift tax or Generation-Skipping Transfer Tax. Unused annual exclusions can’t be carried over and are forever lost. It is best to make exclusion-eligible gifts as early as possible so as not to lose any of their benefit. A married couple could, for example, gift another married couple up to $72,000 and still qualify for the exclusion under the split gift rule.
Illustration: Alex and Eliza are married. Alex transfers $36,000 to their adult child, George. If Eliza agrees to split the gift, the $36,000 will be treated as if Alex and Eliza each individually gave $18,000 to George. If George is also married, Alex or Eliza could also transfer $36,000 to George’s spouse and treat that transfer as a split gift qualifying for the exclusion.
Recommendation: If a gift is made by check near the end of the year and the donor wants to qualify for this year’s exclusion, the donee should deposit the check before year-end so there’s no doubt as to when the gift was made. Gifting income-producing or appreciated property The donor and donee can realize overall income tax savings when income-earning property is given to a donee who is in a lower income tax bracket than the donor or who is not subject to the NIIT.
Estate tax can also potentially be saved because both the value of the gift on the date of transfer and its post-transfer appreciation (if any) are removed from the donor’s estate. Income can also be shifted to lower-bracket family members by giving them appreciated property to be sold by them at a gain. A valid gift of property that is completed before the property is sold generally shifts the tax liability on the gain from donor to done.