Table of Contents
- What Is the Unified Tax Credit?
- Key Takeaways
- Understanding the Unified Tax Credit
- Annual Gift Tax Exclusion
- Federal Estate Tax Rates
- Unified Credits and Probate
- What Is the Gift Tax Exclusion for 2024 and 2025?
- What Is the Gift and Estate Tax Exemption for 2024 and 2025?
- Which States Have an Estate Tax?
- The Bottom Line
What Is the Unified Tax Credit?
Let me explain the unified tax credit, also known as the unified transfer tax. It's something the IRS offers to all U.S. taxpayers, combining two lifetime exemptions for gift and estate taxes. This combined limit covers taxable gifts you make during your life, called inter vivos gifts, and the assets you leave to beneficiaries after death, known as testamentary transfers.
Key Takeaways
You should know that the unified tax credit sets a specific dollar amount you can gift during your lifetime and pass to heirs before any gift or estate taxes kick in. It unifies gift and estate taxes into one system, reducing your or your estate's tax bill dollar for dollar. For 2025, the lifetime exemption is $13.99 million for individuals and $27.98 million for married couples filing jointly; in 2024, it was $13.61 million and $27.22 million respectively. Also, in 2025, you can give up to $19,000 per recipient tax-free without reporting it to the IRS, or $38,000 if you're splitting gifts with a spouse; for 2024, those figures were $18,000 and $36,000.
Understanding the Unified Tax Credit
If you're giving away substantial assets while alive, you might face gift taxes. Assets left after death could trigger estate taxes. The unified tax credit establishes an amount you can gift during life and leave to heirs without those taxes applying.
Remember, the donor pays the gift tax, but sometimes the recipient agrees to cover it. If you're thinking about that setup, consult a tax professional.
This credit rolls gift and estate exclusions into one system, cutting the tax bill dollar-for-dollar. If you or your spouse gift assets exceeding the annual exclusion—in 2025, that's $19,000, and it was $18,000 in 2024—you may need to file a gift tax return. Gifts to charities, or payments for someone's medical or tuition costs, are exempt from these filing rules.
Annual Gift Tax Exclusion
Most of you can gift up to $19,000 in 2025 without telling the IRS; it was $18,000 in 2024. This is per person, so married couples can give $38,000 jointly in 2025 without filing, compared to $36,000 in 2024. If you exceed these, report it on Form 709, and the excess might count against your lifetime exemption. You won't pay gift taxes until you surpass the lifetime limit of $13.99 million individually or $27.98 million jointly in 2025; for 2024, it was $13.61 million and $27.22 million.
Certain transfers skip gift tax rules entirely. These include gifts under the annual exclusion, gifts to your spouse, qualified medical payments, tuition payments, transfers to political organizations, and those to specific tax-exempt groups.
As the IRS defines it, a gift is any transfer to an individual, direct or indirect, without receiving full value in return.
Federal Estate Tax Rates
For 2025, estate tax applies above $13.99 million; you can pass that amount to heirs tax-free, or double for couples. In 2024, it was $13.61 million individually and double for joint filers. Only a tiny fraction of U.S. estates exceed these thresholds. For those that do, rates apply to the excess, maxing at 40% over $1 million.
The unified rate schedule starts at 18% for up to $10,000 taxable, with $0 base plus 18% on the amount; it goes to 20% for $10,001-$20,000 with $1,800 base plus 20%; 22% for $20,001-$40,000 with $3,800 base plus 22%; 24% for $40,001-$60,000 with $8,200 base plus 24%; 26% for $60,001-$80,000 with $13,000 base plus 26%; 28% for $80,001-$100,000 with $18,200 base plus 28%; 30% for $100,001-$150,000 with $23,800 base plus 30%; 32% for $150,001-$250,000 with $38,800 base plus 32%; 34% for $250,001-$500,000 with $70,800 base plus 34%; 37% for $500,001-$750,000 with $155,800 base plus 37%; 39% for $750,001-$1,000,000 with $248,300 base plus 39%; and 40% above $1,000,000 with $345,800 base plus 40%.
Unified Credits and Probate
Probate can be costly, so some use the unified tax credit to minimize estate taxes after death. It's applied to inheritance rather than lifetime gifts in this case. To use it, the estate executor or beneficiaries file IRS Form 706 to calculate the tax under Chapter 11 of the IRC. You can apply the credit during life, after death, or both.
What Is the Gift Tax Exclusion for 2024 and 2025?
For 2025, it's $19,000; in 2024, it was $18,000. If gifting to a non-U.S. citizen spouse, the annual amount is $190,000 in 2025 and was $185,000 in 2024.
What Is the Gift and Estate Tax Exemption for 2024 and 2025?
In 2025, it's $13.99 million individually or $27.98 million jointly; for 2024, $13.61 million and $27.22 million respectively.
Which States Have an Estate Tax?
Beyond federal taxes, 12 states plus D.C. impose their own estate taxes. Hawaii and Washington top out at 20%.
The Bottom Line
The unified tax credit is open to all U.S. taxpayers. It applies to lifetime gifts and assets left to beneficiaries. You can gift up to $19,000 in 2025 without IRS notice—$18,000 in 2024. Use the credit during life, after death, or both.
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