We can each gift unlimited wealth to our spouses without having to pay gift tax. In addition, we can each make lifetime gifts totaling $11,400,000 to people other than our spouses before gift tax kicks in. This number is indexed for inflation, so it increases annually.
This gift tax regime is in effect only through 2025 unless it is extended by Congress. If Congress fails to act, then the gift tax exclusion amount reverts to its 2017 level of $5,000,000, adjusted for inflation.
The temporary nature of the current law is making some folks a little nervous. Those considering very large gifts (e.g., family farms, vacation homes, closely-held businesses, collectibles or artwork) fear that if they take full advantage of the current exclusion amounts, they may get clobbered with a huge tax bill if the current law is allowed to sunset and the exclusion amount drops back to its 2017 level. (The tax rate on gifts exceeding the exclusion amount is 40%!)
The good news is that the Treasury Department and IRS have proposed regulations that will prevent retroactive taxation of gifts that were sheltered from gift tax when made. It’s fully expected that these temporary regulations will be soon made permanent, but we’ll let you know if it turns out otherwise.
In the meantime, remember that the current gift tax regime is in place only until 2026 unless Congress extends the law. If you are considering very large gifts to individuals other than your spouse, there is every reason to complete those gifts before the end of 2025.