The IRS has revealed that, starting in 2025, inflation adjustments will bring significant increases to the annual gift tax exclusion and the lifetime estate and gift tax exemption. The annual exclusion will rise to $19,000 per recipient, the highest amount to date.
For gifts to a non-U.S. citizen spouse, the tax-free annual limit will increase to $190,000. Additionally, the lifetime estate and gift tax exemption will grow to $13.99 million per individual for 2025, up from $13.61 million in 2024. This means that married couples can collectively shield up to $27.98 million from federal estate and gift taxes. For couples who have already maxed out their lifetime gifts, this change enables them to give away an additional $760,000 tax-free starting in 2025.
Annual Gift Tax Exclusion
Each year, taxpayers can make tax-free gifts up to a set annual exclusion amount per recipient without dipping into their lifetime exemption. For 2025, this amount increases to $19,000, which allows married couples to gift $38,000 per recipient annually.
For example, a couple with three children and five grandchildren could transfer a total of $304,000 in 2025 to their descendants without affecting their combined $27.98 million exemption. These gifts not only reduce the size of the taxable estate but also remove the future appreciation of those assets from estate and gift tax calculations.
Gifts to Non-U.S. Citizen Spouses
While unlimited tax-free transfers are permitted between U.S. citizen spouses, gifts to a non-U.S. citizen spouse are capped to prevent the potential for estate tax avoidance.
In 2025, the first $190,000 in gifts to a non-U.S. citizen spouse will be excluded from taxable gifts. This applies whether the non-U.S. citizen spouse is a resident or non-resident of the United States.
Lifetime Estate and Gift Tax Exemption
If an individual gives more than the annual exclusion amount, the excess counts toward their lifetime estate and gift tax exemption, which will rise to $13.99 million in 2025. The lifetime exemption is shared between gifts made during one’s lifetime and the assets left capital gains tax-free to heirs upon death.
Exceeding the annual gift tax exclusion requires filing a gift tax return by April 15 of the following year to report the excess and track the remaining lifetime exemption.
It’s important to note that the increased exemption amount is temporary. Under current law, the lifetime estate and gift tax exemption is set to decrease by half in 2026, making 2025 a critical year for individuals and families considering large gifts or wealth transfers.
