Outlook for Federal Estate and Gift Tax in 2025
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, introduced significant reforms that affected various aspects of federal taxation, including changes to estate and gift tax provisions. One of the most notable provisions was the temporary increase in the exemption amounts for federal estate and gift taxes. However, these increases are set to expire at the end of 2025, unless Congress intervenes to extend or modify them. The future of the TCJA’s estate and gift tax provisions in 2025 will depend on several factors, including the political environment, economic conditions, and legislative priorities.
Some Key Aspects of the Related Issues to the Estate and Gift Tax Provisions:
1. Increased Estate and Gift Tax Exemption (Temporary)
- Pre-TCJA: Prior to the TCJA, the estate and gift tax exemption was $5.49 million per individual (adjusted for inflation in 2017), meaning that individuals could pass up to this amount to beneficiaries and/or heirs without incurring federal estate or gift taxes.
- Post-TCJA Changes: The TCJA temporarily raised the estate and gift tax exemption, increasing it to $11.18 million per individual (in 2018), with the exemption for married couples reaching $22.36 million (both figures indexed for inflation). For 2025, the exemption is expected to be $13.99 million per individual, or $27.98 million for married couples.
- These increases are set to expire after 2025, which means that unless Congress acts, the exemptions will revert to their pre-TCJA levels.
2. Gift Tax Annual Exclusion
- The annual gift tax exclusion allows individuals to gift up to $18,000 per recipient in 2024, and $19,000 per recipient in 2025, without impacting the estate and gift tax exemption. This exclusion is available per donor, per recipient, and can be used by both individuals and married couples. Gifts made under this exclusion do not trigger gift taxes, allowing for tax-efficient wealth transfer.
3. Step-Up in Basis
- The step-up in basis rule, which allows beneficiaries or heirs to inherit assets at a new tax basis equal to the fair market value at the time of the decedent’s death, remains in place under the TCJA. This effectively allows beneficiaries to avoid paying capital gains taxes on the appreciation of inherited assets that occurred during the decedent’s lifetime.
Legislative Outlook for 2025
As tax reform discussions are often handled through the budget reconciliation process, it is likely that Congress will address the expiration of the TCJA’s estate and gift tax provisions as part of broader tax reform or budget discussions in early 2025, or potentially later in the year. If Republicans control Congress, there may be strong pressure to extend or make permanent the TCJA’s current provisions. However, the specific outcomes remain uncertain and will be shaped by the political dynamics of the time.
The future of estate and gift tax provisions under the TCJA is contingent upon action by Congress in 2025. As we approach the expiration of these temporary increases, it is important for individuals and advisors to stay informed about potential legislative changes. Our office will continue to monitor developments and provide updates as new information becomes available.
To learn more about Washington’s Estate and Gift Taxes, or any other aspect of estate planning, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.
