Each year, the Internal Revenue Service (and New York State) provides for adjusted figures for a number of estate and gift tax exemptions. The federal 2025 exemptions have been released. The federal estate and gift tax exemption will be $13.99 million per individual for 2025 gifts and deaths, up from $13.61 million in 2024. The NYS estate tax exemption for 2025 has yet to be announced, but is $6.94 million in 2024.
In addition, the annual gift tax exclusion is increasing due to inflation. The exclusion will be $19,000 per recipient for 2025 which is the highest exclusion amount ever. Further, the annual amount that one may give to a spouse who is not a U.S. citizen will increase to $190,000 in 2024. If a person gifts an amount that is above the annual gift tax exclusion, that individual will use a portion of his or her lifetime gift tax exemption ($13.99 million in 2025). The federal gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. If one makes gifts in excess of the annual gift tax exclusion, one must file a gift tax return, due April 15 in the following year, to report the gift and track the amount of the lifetime exemption that has been used.
For married couples, the $19,000 annual exclusion means that they can give $38,000/year per recipient. As an example, if a married couple has two children and four grandchildren, they may transfer $228,000 in 2025 to their descendants without reducing their combined $27.98 million gift tax exemption, thus allowing them to transfer further substantial assets gift-tax-free.
Generally, spouses who are both U.S. citizens may transfer unlimited amounts to each other without incurring any gift tax, as any assets in excess of the couple’s combined estate tax exemption ($27.99 million in 2025) will be taxed at the death of the surviving spouse and transferring assets to the survivor only defers the tax that the IRS will eventually collect. Gifts to a non-US citizen spouse, however, are limited. Since a non-U.S. citizen spouse may not be subject to the U.S. estate tax, one cannot transfer unlimited assets to a non-U.S. citizen spouse since that transferred wealth could potentially avoid U.S. estate taxation upon the non-U.S. citizen spouse’s death. Thus, when the recipient spouse is not a U.S. citizen, and regardless of whether the non-U.S. citizen spouse is a resident or nonresident of the United States, the amount of tax-free gifts is limited to an annual exclusion amount. For calendar year 2025, the first $190,000 of gifts to a spouse who is a non-U.S. citizen are not included in the total amount of taxable gifts.
Although the federal lifetime estate and gift tax exemption will increase to $13.99 million in 2025, that amount is set to be cut in half at the start of 2026 when the current tax law “sunsets” or expires.
Stay tuned for New York’s eventual announcement of its 2025 exemptions.
For an unmarried person who has already maxed out lifetime gifts, the increase in the federal exemption for 2025, means that he or she may give away another $380,000 in 2025. For a married couple who has already maxed out lifetime gifts, this means that they may give away another $760,000 million in 2025. The attorneys at Kurre Schneps LLP are available to discuss the effect of the 2025 exemptions on your situation and how they may be used to your advantage to minimize taxes.
