Ask the Editor, May 23: Reader Questions on Gifts, Estate Tax

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on gifts, the estate tax and stepped-up basis upon death. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. The annual exclusion amount for gifts

Question: What is the annual exclusion amount for gifts made in 2025?

Joy Taylor: The annual gift tax exclusion is $19,000 per donee this year. This means in 2025, you can give up to $19,000 per person without paying federal gift tax, tapping your lifetime estate and gift tax exemption, or filing a federal gift tax return. Here’s an example. Say you have two sons and three grandchildren, and you want to gift the maximum amount to each of your relatives, including your son’s spouses, without having to file a gift tax return in 2025. The most you can give is $19,000 to each relative. That’s $133,000 in excludable gifts.

2. Gifts over the annual exclusion amount

Question: I am planning to gift my son $100,000 this year. Do I have to pay federal gift tax on this?

Joy Taylor: It is unlikely that you will have to pay any federal gift tax on this gift to your son. Although the $100,000 gift would exceed the $19,000-per-donee annual gift tax exclusion amount, you will not owe any federal gift tax, provided that your total lifetime gifts don’t exceed the lifetime estate and gift tax exemption, which for 2025 deaths is $13,990,000. You will have to file a federal gift tax return on Form 709 to report the gift to the IRS because the gift is over the $19,000 annual exclusion amount.

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3. Stepped-up basis

Question: My spouse and I jointly own our home, which has substantially appreciated. How do the stepped-up basis rules work if one of us dies?

Joy Taylor: Under the tax law, a decedent’s unrealized gains aren’t hit with federal income tax at death, and heirs step up their basis in the assets they receive, equal to fair market value on death. With regards to your house, if you don’t live in a community property state, half of the home will get a step-up in basis upon the death of the first-to-die spouse. For example, let’s say you and your spouse bought a home for $100,000 many years ago, and it is worth $750,000 on the date the first of you dies. The surviving spouse’s basis in the home would be $425,000 (his or her half of the original $100,000 basis plus half of the deceased spouse’s $750,000 date-of-death value). The rules are more generous if the house is held as community property. The entire basis is stepped up to fair market value when the first spouse dies.

4. Estate taxes and the house bill

Question: Does the one big, beautiful House bill extend the larger lifetime estate tax exemption?

Joy Taylor: Currently, the federal lifetime estate and gift tax exemption for 2025 deaths is $13,990,000, and the highest estate tax rate is 40%. After 2025, the $13,900,000 figure is slated to drop to about $7 million or so unless Congress passes legislation to extend the higher amount. That is because the higher lifetime estate tax exemption is one of the provisions in the 2017 Tax Cuts and Jobs Act that was made temporary.

The one big, beautiful bill passed by the House would not only make the larger lifetime estate and gift tax exemption permanent but would also increase it. If the bill is enacted, the lifetime estate and gift tax exemption amount for decedents dying in 2026 would be $15 million. And this figure would increase for inflation each year.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to inherited IRAs, hobby losses, IRS payment letters and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Disclaimer

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.