The Tax Cuts and Jobs Act (TCJA) effectively doubled the unified federal gift and estate tax exemption — and annual inflation adjustments have boosted it even further. For individuals who make gifts or die in 2025, the exemption amount is $13.99 million ($27.98 million for married couples).
Under the TCJA, the exemption amount is scheduled to revert to the pre-TCJA level after 2025, unless Congress extends it. This has caused uncertainty for wealthy individuals whose estates may be exposed to gift and estate taxes if the higher exemption were to expire after 2025.
The good news is that Congress has finally taken steps to address this expiring tax provision (among many others). The U.S. House of Representatives passed The One, Big, Beautiful Bill in May. Under the proposed bill, beginning in 2026, the federal gift and estate tax exemption would be permanently increased to $15 million ($30 million for married couples). That amount would continue to be annually adjusted for inflation.
Gift and estate tax exemption basics
Under the TCJA, the federal gift and estate tax exemption increased from $5 million to $10 million per individual, with annual indexing for inflation. Taxable estates that exceed the exemption amount have the excess taxed at up to a 40% rate. In addition, cumulative lifetime taxable gifts that exceed the exemption amount are taxed at up to a 40% rate.
Under the annual gift tax exclusion, you can exclude certain gifts of up to the annual exclusion amount ($19,000 per recipient for 2025) without using up any of your gift and estate tax exemption. If you make gifts in excess of what can be sheltered with the annual gift tax exclusion amount, the excess reduces your lifetime federal gift and estate tax exemption dollar-for-dollar.
Under the unlimited marital deduction, transfers between spouses are federal-estate-and-gift-tax-free. But the unlimited marital deduction is available only if the surviving spouse is a U.S. citizen.
Next steps
The proposed legislation is now being considered by the Senate. It’s likely to change (perhaps significantly) before the Senate votes on it. If there are changes, it’ll then go back to the House for a vote before being sent to President Trump for his signature.
In addition to disagreements about the bill’s tax provisions, there are Senators who don’t agree with some of the spending cuts. Regardless, changes to the estate tax rules are expected this year. Contact us to learn how these potential changes could affect your estate plan.
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