Estate and Gift Tax: Who Actually Pays It (2025)

A tax most families never touch

Estate and gift taxes have a fearsome reputation and a tiny reach. Because the federal exemption is so high, only a fraction of one percent of estates owe any federal estate tax. Understanding the thresholds usually brings relief rather than worry.

The 2025 exemption

For 2025 the federal estate and gift tax exemption is about $13.99 million per person (roughly $27.98 million for a married couple), per IRS inflation guidance and the IRS — Estate Tax. Estates below that owe no federal estate tax. Above it, the top rate reaches 40% on the excess.

The annual gift exclusion

You can give up to the annual exclusion — $19,000 per recipient in 2025 — to as many people as you like with no gift-tax return and no effect on your lifetime exemption, as the IRS — Gift Tax explains. Gifts above that simply reduce your lifetime exemption; they rarely produce an actual tax.

How the two taxes connect

Estate and gift taxes share one unified lifetime exemption. Large lifetime gifts draw down the same amount that would otherwise shelter your estate. This is why the wealthy plan gifting carefully — and why ordinary families almost never need to.

State taxes and the step-up in basis

Several states levy their own estate or inheritance taxes with far lower thresholds, so check your state's rules. On the plus side, inherited assets generally receive a step-up in basis to their date-of-death value, which can eliminate built-in capital gains for heirs.