While high inflation is generally bad for the economy, the upside is that various tax figures adjust upwards for inflation on an annual (or other) basis. Because fairly high inflation continued during 2024, we reap the rewards of higher-than-normal increases in various estate planning related tax exemption figures for tax year 2025.
The Basic Exclusion Amount (“BEA”) (also known as the Unified Gift and Estate Tax Exclusion Amount) is $10 million, indexed for inflation. The BEA amount indexed for inflation for 2025 has increased from $13,610,000 to $13,990,000 per person. Also under current law, the BEA is scheduled to be cut in half and return to $5 million, indexed for inflation, as of January 1, 2026.
The Generation Skipping Transfer (“GST”) tax exemption uses the same figures as the BEA amount, although this has not always been the case. As a result, the GST tax exemption amount has also increased from $13,610,000 to $13,990,000 per person for 2025 and is also scheduled to be cut in half and return to $5 million indexed for inflation on January 1, 2026.
The Gift tax annual exclusion permits you to make tax free gifts without having any effect on your available BEA (and possibly, no effect on your available GST tax exemption amount). The Gift tax annual exclusion amount is $10,000, indexed for inflation and moves up only in increments of $1,000. For 2025, the Gift tax annual exclusion amount increases from $18,000 to $19,000.
The Gift tax annual exclusion for gifts to a non-citizen spouse is different than the normal Gift tax annual exclusion since gifts to a non-citizen spouse do not normally qualify for the unlimited marital deduction from the gift, estate and GST taxes. As a result, the annual Gift tax exclusion is important in moving assets between spouses, when at least one of them is a non-USA citizen. The Gift tax annual exclusion for gifts to a non-citizen spouse is $100,000, indexed for inflation. For 2025, this exemption amount increases from $185,000 to $190,000.
For more information on the updated tax figures, please see Rev Proc 2024-40 at https://www.irs.gov/pub/irs-drop/rp-24-40.pdf
