Understanding the Gift Tax in 2025: How to Use It Before Year-End

Why Gift Planning Matters Now

With the year winding down, 2025 remains one of the most favorable years in decades for lifetime wealth transfers.
The federal gift tax exemption, aligned with the estate tax, allows individuals to transfer up to $13.99 million tax-free, or $27.98 million for married couples, before it resets in 2026.

Strategic gifting before December 31 can remove appreciation from your taxable estate, lower future estate taxes, and help family members or charitable causes benefit immediately.

1. The 2025 Gift Exclusion at a Glance

You can give up to $19,000 per person this year ($38,000 for married couples) without filing a gift tax return or reducing your lifetime exemption.
These annual gifts are “use it or lose it.” They do not carry forward into future years, making this the final chance to use your 2025 allowance.

✅ Example: A couple with three children and two grandchildren can transfer $228,000 tax-free in 2025 simply by using their annual exclusions.

2. Leveraging Lifetime Exemptions Strategically

High-net-worth families can make larger gifts, beyond annual exclusions, using the lifetime exemption. Transfers exceeding $19,000 per person reduce your lifetime exemption but remain tax-free until you exceed the $13.99M limit.

Pro Tip: The IRS confirms that gifts made under today’s exemption will not be “clawed back” if exemptions fall in 2026. That means wealth transferred now stays exempt permanently.

3. Tax-Free Gift Exceptions

Certain gifts are always exempt from gift taxes, regardless of amount:

  • Tuition payments made directly to educational institutions

  • Medical expenses paid directly to providers

  • Charitable gifts to qualified 501(c)(3) organizations

  • Transfers to a U.S. citizen spouse (or up to $190,000 if non-citizen)

These exclusions offer powerful, immediate ways to reduce estate size without using annual or lifetime limits.

4. Smart Gifting Strategies for 2025

  • Gift appreciating assets early: Stocks, business interests, or crypto expected to grow.

  • Avoid gifting highly appreciated assets: Beneficiaries inherit your cost basis, not a step-up.

  • Consider SLATs and GRATs: Trust-based transfers capture appreciation outside your estate.

  • Use valuation discounts: Family limited partnerships (FLPs) or minority interests can lower taxable value.

5. Why Act Before 2026

Starting in 2026, the lifetime exemption is expected to revert to roughly $7 million per person, cutting today’s opportunity in half.
Executing gifts before December 31, 2025, ensures you permanently lock in current advantages, regardless of future legislative changes.

The 2025 gift and estate tax exemption remains at $13.99 million per person, doubling for married couples. Individuals can give up to $19,000 per recipient this year tax-free. Acting before December 31 lets you lock in these advantages permanently before next year’s exemption drop.

 

Thinking about a year-end gift?
A short planning conversation can align amounts, beneficiaries, and timing—so every move supports your long-term plan.
Talk to us at Brothers Tax.