Ask the Editor, August 29: Tax Questions on Estate and Gift Taxes

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 estate and gift taxes. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Estate tax changes under the OBBB

Question: Did the “One Big Beautiful Bill” (OBBB) make any changes to the federal estate and gift tax?

Joy Taylor: Yes. It increased the lifetime federal estate and gift tax exemption and made it permanent. For 2025 deaths, the exemption is $13,990,000, and the highest estate tax rate is 40%. This exemption amount was enacted in the 2017 Tax Cuts and Jobs Act, but it was temporary, set to expire after 2025 and drop to $7 million or so. The OBBB not only made the larger lifetime estate and gift tax exemption permanent, but also increased it to $15 million for 2026 deaths. This figure will rise each subsequent year to account for inflation.

The top federal estate tax rate remains 40%. The OBBB did not change this.

2. State death taxes

Question: Which states impose taxes upon death?

Joy Taylor: Most states do not impose taxes upon death. However, some do. Washington, D.C., and 12 states levy their own estate taxes on decedents. These states are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. The estate tax exemption amounts in the 13 locales vary widely from state to state, and most are far below the federal exemption. Only Connecticut has hiked its estate tax exemption amount to close to the current federal level.

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Five states have inheritance taxes. They are Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. As you can see, Maryland has an estate tax and an inheritance tax.

For more information, see 18 States With Scary Estate and Inheritance Taxes.

3. Estate tax portability

Question: I am married, and when I die, my estate will be less than the $15 million federal lifetime estate and gift tax exemption. Can any unused exemption be transferred to my spouse?

Joy Taylor: Yes. When you die, your estate can do this by making what is called a federal estate tax portability election. Portability allows a married decedent’s unused federal lifetime estate and gift tax exemption to pass to the surviving spouse. But transferring the unused exemption isn’t automatic. An estate elects portability by timely filing an estate tax return on IRS Form 706. Filing the Form 706 is required to elect portability, even if the estate is not otherwise required to file the 706 because its assets and previous taxable gifts made by the decedent are below the normal threshold amount for filing a federal estate tax return, which is $13,990,000 for 2025 deaths and $15 million for 2026 deaths.

4. The annual gift exclusion amount

Question: What is the annual federal exclusion amount for gifts made in 2025? And did the OBBB change this?

Joy Taylor: The annual federal 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 sons’ 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.

The OBBB didn’t change the annual gift tax exclusion. So for 2026, the amount will stay close to $19,000. It might be a bit higher because of inflation.

Note that recipients of your gifts will not owe federal income tax on the amount of the gift they receive. Gifts are excluded from gross income, no matter the amount.

5. Gifts over the 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 IRS Form 709 to report the gift to the IRS because the gift is over the $19,000 annual exclusion amount.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

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