The 2025 estate tax exemption is $13.61 million per person

For 2025, you can transfer up to $13.61 million to heirs during your lifetime or at death without owing federal estate tax. This amount applies to each individual — a married couple can shield $27.22 million together. The exemption changes every year based on inflation, and the IRS announced the 2025 figure in October 2024.

This exemption is separate from income tax. It does not reduce your taxable income while you are alive. It only matters when you transfer money or property to others without receiving something of equal value in return — either through gifts now or through your will after you die.

The exemption is temporary. Congress set it to expire on December 31, 2025, unless lawmakers extend it. After that date, the exemption is scheduled to drop to roughly $7 million per person (adjusted for inflation), which would be closer to what it was in 2017. This sunset is why the exemption amount matters more in 2025 than it might in other years.

Key Takeaways

  • The 2025 federal estate tax exemption is $13.61 million per person, or $27.22 million for a married couple filing jointly.
  • The exemption applies only to transfers without receiving something of equal value — gifts, inheritances, and property passed through your will.
  • The exemption is scheduled to drop to approximately $7 million per person on January 1, 2026, unless Congress extends the current law.
  • Transfers above the exemption amount are taxed at a flat rate of 40 percent, making the difference between planning now and planning later potentially worth millions.
  • The exemption does not reduce your income tax; it is a separate limit on wealth transfer.

How the exemption works with the 40 percent tax rate

If your estate or lifetime gifts exceed the exemption, the IRS taxes the overage at a flat 40 percent rate. This is one of the highest tax rates in the federal system. For example, if you give away $14.61 million in 2025, you owe tax on $1 million at 40 percent — that is $400,000 in estate tax.

The exemption is a one-time pool, not an annual allowance. You can use it all at once during your lifetime, spread it across multiple gifts, or save it for your estate to use after you die. Once you use it, it is gone. If you give $5 million to your children as gifts in 2025, you have $8.61 million left to shield at death.

Married couples can combine their exemptions through a process called portability, which requires filing a specific form with the IRS after the first spouse dies. Without portability, the surviving spouse loses the deceased spouse's unused exemption. This is why married couples with substantial assets should have a plan in place.

Why 2025 is a critical year for estate planning

The exemption amount is nearly double what it will be in 2026. If you have an estate worth more than $7 million (or $14 million as a couple), the difference between acting in 2025 and waiting until 2026 could cost your heirs hundreds of thousands of dollars in taxes.

Some people use the higher 2025 exemption to make large gifts to children or grandchildren now, locking in the current exemption before it drops. Others fund trusts or make charitable donations structured to use the exemption efficiently. These moves do not reduce your income tax — they straightforward use up your exemption amount while it is still high.

Congress could extend the current exemption beyond 2025, but that is not certain. If you wait to see what happens, you risk losing the opportunity to use the higher amount. Conversely, if you act and Congress later raises the exemption further, you cannot undo a gift you have already made.

Gifts, lifetime transfers, and how they count against your exemption

Gifts you make during your lifetime count against your exemption. If you give $2 million to your daughter in 2025, that $2 million reduces your exemption from $13.61 million to $11.61 million. You do not owe tax on the gift itself — the exemption covers it — but the exemption is used up.

There is an annual gift tax exclusion that is separate from the exemption. In 2025, you can give up to $18,000 per person per year without counting against your exemption. A married couple can give $36,000 per person per year. These small gifts are tax-free and do not reduce your exemption pool.

Gifts to spouses who are U.S. citizens are unlimited and do not count against the exemption. Gifts to charity are also unlimited and tax-free. Medical and tuition payments made directly to the provider (not to the person receiving care or education) are unlimited as well.

What happens to your exemption after 2025

On January 1, 2026, the exemption is scheduled to drop to approximately $7 million per person, adjusted for inflation. The exact 2026 amount will be announced in October 2025. This is not a guess or a proposal — it is the law as currently written, unless Congress votes to change it.

If Congress does nothing, estates worth more than $7 million will owe 40 percent tax on the amount above that threshold. For a married couple with a $20 million estate, that could mean $5.2 million in federal estate tax (40 percent of $13 million over the $7 million threshold).

Some people argue the exemption should be higher; others argue it should be lower. But the current law is clear: the exemption sunsets unless lawmakers act. This uncertainty is why many estate planning attorneys recommend reviewing your plan in 2025 and making any large transfers before the year ends.

State estate taxes and how they differ from federal exemptions

Seventeen states and the District of Columbia have their own estate taxes, separate from the federal exemption. State exemptions are much lower — typically ranging from $1 million to $6.94 million depending on the state. New York, for example, has a $6.94 million exemption in 2025. Washington State has no exemption at all.

If you live in a state with an estate tax, you may owe state tax even if your estate is below the federal exemption. A $10 million estate in New York would owe no federal tax (it is below the $13.61 million exemption) but would owe New York state tax on the amount above $6.94 million.

Some states also have inheritance taxes, which are taxes on the person receiving the money rather than on the estate itself. These are rare and work differently from estate taxes. If you live in or own property in a state with an estate or inheritance tax, your plan should account for both the state and federal exemptions.

How to use the 2025 exemption before it drops

The most common strategies are direct gifts to family members, funding of trusts, and charitable giving. A direct gift of $5 million to your children uses $5 million of your exemption but removes that money from your taxable estate. If that money grows to $10 million by the time you die, your heirs inherit the growth tax-free.

Trusts can be structured to use the exemption and provide ongoing control over how money is used. A grantor retained annuity trust (GRAT) or intentionally defective grantor trust (IDGT) can transfer appreciation to heirs while using little or none of your exemption. These are complex and require professional help to set up correctly.

Charitable giving can also use the exemption efficiently. A charitable remainder trust lets you donate to charity while receiving income during your lifetime, and the donation counts against your exemption. If you want to give to charity anyway, this approach can reduce your taxable estate while supporting causes you care about.

None of these strategies reduce your income tax. They only use your exemption to avoid the 40 percent estate tax on large transfers. You should work with an estate planning attorney and a tax professional to understand which approach fits your situation.

Frequently Asked Questions

Do I owe estate tax if my estate is under $13.61 million in 2025?

No. If your estate is below the exemption, you owe no federal estate tax, and your heirs inherit everything. Your executor still files Form 706 (the estate tax return) if your estate is large enough, but that is a reporting requirement, not a tax bill. State estate taxes may still explore depending on where you live.

If I give away $5 million in 2025, can I give away another $8.61 million at death?

Yes. The exemption is a single pool. If you use $5 million during your lifetime, you have $8.61 million left to shield at death. Any amount above that remaining exemption is taxed at 40 percent. This is why some people make large gifts early — to lock in the higher 2025 exemption before it drops.

What if Congress extends the exemption past 2025?

If Congress votes to extend the current exemption, it would remain at $13.61 million (adjusted for inflation) for future years. If Congress raises it further, you cannot undo a gift you already made to take advantage of the new amount. If Congress lets it drop, you will have used your exemption wisely by acting in 2025.

Does my spouse's unused exemption transfer to me automatically?

No. You must file Form 706 after your spouse dies and make an election for portability. Without this election, your spouse's unused exemption is lost. If you are married with a substantial estate, make sure your executor knows to file this form and make the portability election.

Are gifts to my children taxed as income to them?

No. Gifts are not income, so your children do not owe income tax on money you give them. The gift tax (if any) is paid by you, the giver, not by them. This is a common source of confusion — the exemption protects you from gift tax, not your children from income tax.