The federal gift tax exemption sunset that was scheduled for December 31, 2025, never happened. Congress passed the One Big Beautiful Bill Act, signed into law on July 4, 2025, which permanently set the lifetime gift and estate tax exemption at $15 million per individual starting in 2026.1Internal Revenue Service. What’s New — Estate and Gift Tax The feared drop to roughly $7 million per person is off the table, and the “use it or lose it” urgency that drove estate planning conversations through most of 2025 is gone.
What Was Supposed to Happen on December 31, 2025
The Tax Cuts and Jobs Act of 2017 roughly doubled the federal gift and estate tax exemption, pushing it past $11 million per person starting in 2018.2Internal Revenue Service. Estate and Gift Tax FAQs Because the TCJA moved through budget reconciliation, that expanded exemption carried a built-in expiration date of midnight on December 31, 2025. On January 1, 2026, the exemption would have reverted to its pre-2018 base of $5 million adjusted for inflation. Most projections put that figure between $7 million and $7.2 million.
For anyone with a net worth above roughly $7 million, that reversion meant a substantially larger tax bill at death. The standard advice through 2024 and early 2025 was to make large gifts before the window closed, locking in the higher exemption while it still existed.
How the One Big Beautiful Bill Act Changed the Outcome
The One Big Beautiful Bill Act, enacted as Public Law 119-21 on July 4, 2025, eliminated the sunset. Rather than tacking on another extension, the law amended Internal Revenue Code Section 2010(c)(3) and reset the basic exclusion amount at $15 million per individual for 2026.1Internal Revenue Service. What’s New — Estate and Gift Tax Married couples can shield a combined $30 million from federal gift and estate tax. The amount is indexed for inflation going forward.
Because the fix rewrites the underlying statute rather than attaching a new deadline, estate planners are no longer racing a legislative clock. The exemption went up, not down, and for the vast majority of American families, federal gift and estate tax remains a non-issue.
Gift and Estate Tax Numbers for 2026
- Lifetime exemption, individual: $15 million
- Lifetime exemption, married couple: $30 million
- Annual exclusion per recipient: $19,0003Internal Revenue Service. Frequently Asked Questions on Gift Taxes
- Top federal tax rate on amounts above the exemption: 40%
The lifetime exemption is a unified credit, meaning every dollar you use for gifts during your life reduces what remains to shelter your estate at death.4Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax Give away $5 million during your lifetime and your estate can still pass another $10 million tax-free. The annual exclusion runs separately. You can give $19,000 per recipient each year without touching the lifetime figure or filing anything. A married couple using gift-splitting can give $38,000 per recipient per year with no reporting required.
Gifts Already Made Under the Higher Exemption Are Safe
During the run-up to the expected sunset, many people made large gifts specifically to lock in the TCJA-era exemption. The concern at the time was clawback: if someone gifted $13 million in 2024 and the exemption later fell to $7 million, would the IRS effectively recapture the $6 million difference through the estate?
Treasury resolved that question with Treasury Decision 9884, which created a safe harbor. Your estate calculates its credit using the higher of two numbers: the exemption that applied when the gift was made, or the exemption in effect at the time of death.5Federal Register. Estate and Gift Taxes; Difference in the Basic Exclusion Amount The IRS cannot retroactively tax gifts that were fully covered by the exemption when they were made.6Internal Revenue Service. Final Regulations Confirm: Making Large Gifts Now Won’t Harm Estates After 2025 Because the exemption has climbed to $15 million rather than fallen, the rule is less practically urgent than it looked a year ago, but it permanently protects gifts made between 2018 and 2025 if a future Congress ever reduces the exemption again.
What the New Law Did Not Fix
State Estate and Inheritance Taxes
The federal exemption is only part of the picture. Roughly a dozen states and the District of Columbia impose their own estate taxes, and many of those start at far lower thresholds than the federal $15 million. State-level exemptions generally range from about $1 million to roughly $13 million depending on the jurisdiction. A handful of states also impose a separate inheritance tax on the recipients of bequests. A gift completely tax-free federally can still trigger state consequences, and if you live in or own property in a state with its own estate tax, the state threshold is often the binding constraint on your planning.
Portability Between Spouses
When one spouse dies without using their full lifetime exemption, the surviving spouse can claim the unused portion. This is called portability, and it requires filing an estate tax return (Form 706) for the deceased spouse even if no tax is owed. For estates below the filing threshold, the surviving spouse has up to five years from the date of death to file a portability-only return. If the first spouse dies in 2026 having used only $3 million of their $15 million exemption, the survivor can elect to add the remaining $12 million to their own, creating a combined $27 million shield. Missing the deadline forfeits this benefit permanently, and it is one of the most common and expensive oversights in estate planning.
SLATs and the Reciprocal Trust Doctrine
Spousal Lifetime Access Trusts became one of the most popular estate planning tools during the TCJA era. One spouse creates an irrevocable trust for the benefit of the other, moving assets out of the taxable estate while keeping indirect access through the beneficiary spouse. Trouble arises when both spouses create nearly identical trusts for each other. Under the reciprocal trust doctrine, a court can “uncross” two mirror-image trusts and treat each spouse as the effective owner of the trust created for their benefit, pulling the assets back into each taxable estate.
The doctrine does not require proof of a tax-avoidance motive. If the trusts are interrelated and leave each spouse in roughly the same economic position they would have been in without them, the IRS can challenge the arrangement. There is no regulatory safe harbor. Couples who set up SLATs during the pre-sunset rush should have the trusts reviewed by a qualified estate planning attorney to confirm the terms, timing, funding amounts, or trustee structures differ in meaningful, documented ways.
Reporting Gifts Above the Annual Exclusion
Gifts within the $19,000 annual exclusion require no paperwork. Once you cross that figure for a single recipient in a calendar year, the excess counts against your $15 million lifetime exemption and you report it on IRS Form 709, due April 15 of the following year.7Internal Revenue Service. Instructions for Form 709 An extension on your income tax return automatically extends the Form 709 deadline to October 15.
A common misunderstanding is that crossing the annual exclusion triggers an immediate tax payment. It does not. Filing Form 709 simply records the excess and reduces your remaining lifetime exemption on paper. No tax is owed until your combined lifetime gifts and estate exceed $15 million. Most people will never pay a dollar of gift tax; the form exists so the IRS can track how much of your lifetime exemption you have used.