Estate and Gift Tax

Dr. Adam J. Kantrovich, Extension Specialist of Agribusiness, Assistant Director of Agribusiness Team, and Director of the Clemson Tax School, Clemson University

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Introduction

Many individuals do not think about federal gift and estate taxes until it’s too late. Farmers, landowners, business owners, and individuals need to consider gift and estate taxes at an earlier age than just at retirement or in their later years. It should be considered as part of tax management strategies; in the development of estate planning; and farm, ranch, and business succession and transition planning. This publication will break down federal estate and gift taxation into its basic components, which will include estate taxes, gift taxes, lifetime exclusions, annual exclusions, and portability of the deceased spouse’s unused estate tax exclusion.

Estate Taxes

Estate tax is a tax based on the fair market value (FMV) of all assets (property) owned and controlled by an individual that has died (decedent). This total value of all assets is known as the gross estate. The value of the gross estate needs to be determined as of either the date of death, or an alternate valuation date that will allow the value to be determined six months following the date of death. A formal appraisal of all assets is the best and most accurate method for determining the value of the gross estate. Appraisal should be of all assets including, but not limited to:

1. Land (the dirt itself separated from all improvements)
2. Minerals (oil and gas, coal, etc.)
3. Improvements to the property, including, but not limited to, timber on the stump, groves, orchards, vines, etc.; wells, fences, tiling, etc.
4. Buildings, including, barns, sheds, houses, etc.
5. Machinery, equipment, vehicles, etc.
6. Cash assets, such as cash accounts, investments and similar.

Once the gross estate value is determined, deductions may be used to determine the taxable value of the estate. Deductions to the gross estate may include, but are not limited to, any debt that is still held by the estate and must be paid, funeral expenses, administrative expenses, any marital deduction(s) for assets that are transferred to a surviving spouse, contributions to a qualified charity, and the unified estate and gift tax credit known as the unified credit. The lifetime exclusion amounts for the years 2024 through 2026, and beyond, can be found in Table 1.

Once the net estate value is determined, all deductions and exclusions should be applied to determine the taxable value of the estate. If no tax is due, an Estate Tax Return (IRS Form 706) is not required to be filed within nine months of the date of death, unless there is a desire to make the Portability Election of the unused spouse’s estate tax exemption.

Lifetime Estate Tax Exclusion Values

The lifetime estate tax exclusion value increases from year to year. The most up-to-date values can be found on the IRS website and in Publication 950, Introduction to Estate and Gift Taxes. These values were doubled beginning in 2018, through the Tax Cuts and Jobs Act that was signed into law in December of 2017, and would then sunset and revert to previous rules for the 2026 tax year. In July of 2025, a reconciliation package was passed that included several tax law changes, including making the personal lifetime exclusion amount permanent. The estate tax rate is 40% of the value of the estate in excess of the lifetime estate tax exclusion.

Table 1. Lifetime Estate Tax Exclusion Amounts

	2024	2025	2026	Beyond 2026
Single Individual	$13,610,000	$13,990,000	$15,000,000	$15,000,000 indexed for inflation

Unified Credit

The unified credit is simply the credit applied to net estate value based on the applicable exclusion amount to determine the estate’s taxable value. There are two exclusion amounts that play a role in this credit: 1) the annual exclusion amount that may be applied to any gifts made during the decedent’s lifetime, and 2) the lifetime exclusion allowed by Internal Revenue Code (IRC) to the FMV of the decedent’s estate.

Portability

Portability refers to the present IRC section that allows the unused lifetime exclusion amount from a deceased spouse to be transferred to, and combined with, the surviving spouse’s lifetime exclusion amount, if properly elected on the estate tax return. To claim the portability value of the unused portion of the lifetime exclusion amount of the decedent to the surviving spouse, Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return must be filed.

Tax Basis

It is important to track tax basis on all assets acquired. The tax basis of an asset is dependent on how those assets are acquired, whether through a purchase, inherited through an estate, or as a gift.

1. Purchase. Tax Basis in an asset is based on the purchase price of the asset. If the asset is used in a trade or business, the basis will be reduced by tax depreciation. The asset’s tax basis may be increased by any improvements made to the asset(s).
2. Gifting. The tax basis of the property/asset that is gifted does not change as the asset changes hands. Whatever the tax basis was for the gifting individual will be the same for the person receiving the gift. If Alex purchased property in 1960 for $100,000, and gives that land to his son Jerry in 2024, Jerry’s basis in the property will also be $100,000, even though its fair market value has increased to a current market value of $1 million dollars.The length that the asset was held by the gifting individual will also pass through to the person receiving the gift.
3. Pass Through the Estate. If assets are passed through an estate, the assets will receive a “step-up” in tax basis under IRC. The step-up in basis to FMV takes place as of the date of death (or six months following the day of death, if using the alternate valuation date). This means that if Alex, in the above example, had a tax basis of $100,000 of property/asset(s) with a FMV of $500,000, and those assets are passed through Alex’s estate following his death to his son Jerry, Jerry’s tax basis in the property will be $500,000.

Gift Tax

Gifts of assets including cash (money), services, land and other assets may be subject to a gift tax. There are multiple variables that will come into play to determine if there is a tax liability for the gifting of cash or other assets. 

First, there is a 2025 annual gift exclusion amount per individual of $19,000. The annual exclusion amount is adjusted each year; please review the IRS Form 706, United States Gift (and Generation-Skipping Transfer) Tax Return Instructions for the most up-to-date values and exclusion amounts. You may gift up to the current annual exclusion amount to anyone without any gift tax liability being triggered. If an individual is married, the married couple may use gift splitting and gift up to the current amount, which was $38,000 in 2024, in cash or FMV of other assets to any individual. You may gift that amount to any number of individuals in a single year without any gift tax liability being triggered.

Second, just because the annual exclusion amount for 2025 is $19,000, it does not necessarily mean that if you provide a gift higher than that value, the gift tax will be triggered. The lifetime estate and gift tax exclusion would need to be fully used before an actual gift tax payment would be due, as discussed below.

Taxable Gift

When the value of a gift is greater than the annual exclusion, the amount of the gift in excess of the annual gift tax exclusion is subject to the gift tax. In most cases, the gift may not result in a gift tax being due; rather, the unified estate and gift tax credit will be used to offset the amount of the gift tax due. In other words, a portion of the $13,990,000 (for 2025) unified credit is used to offset the gift taxes due. For example, if a couple makes a gift of $100,000, the amount of the taxable gift is $62,000 ($100,000 – 38,000). The couple then utilizes a portion of the estate tax credit to reduce the gift tax to zero. Their estate tax credit at their time of death will be reduced by the $62,000 used to offset the gift tax due.

Gifts to a spouse, a political organization, a charity, or used to pay college tuition or medical expenses are not subject to the annual gift tax exclusion. Thus, the only time a gift tax return will be due is when a gift is larger than the annual exclusion, and the only time gift tax will be owed is when the total amount of the unified credit has been used over the gift giver’s lifetime.

It is again important to note that the tax basis that the gifting individual has in that gift is also given to the receiver of the gift. Please see the above “Tax Basis” section of this publication.

Gift Tax Return

When gifts are made with a value greater than the annual exclusion amount, a gift tax return will need to be filed using IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form is typically due by April 15^th, and is filed along with the gift giver’s individual tax return.

Gift Recipients

An individual receiving a gift needs to begin to track their tax basis in the asset received. The recipient of assets via a gift or as an inheritance through an estate do not owe any of the estate, gift, or income tax liability. Those taxes are to be paid by the gift-giver or estate of the decedent. Each state has its own laws surrounding tax liability dealing with inheritance, estate, gifts, and the like. It is up to the receiver to review the laws in their specific state of residence, and the state of residence of the giver, for any local tax liabilities that may be owed by the giver and receiver of the property.

IRS Publications

For more information on estate and gift taxes, or to access IRS Publication 950, Introduction to Estate and Gift Taxes; IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return; or IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, visit the IRS website at www.irs.gov.  Type the form, schedule, or publication number or title in the search box.

Additional Topics

This fact sheet was written as part of Rural Tax Education a national effort including Cooperative Extension programs at participating land-grant universities to provide income tax education materials to farmers, ranchers, and other agricultural producers. For a list of universities involved, other fact sheets and additional information related to agricultural income tax please see RuralTax.org.

This information is intended for educational purposes only. You are encouraged to seek the advice of your tax or legal advisor, or other authoritative sources, regarding the application of these general tax principles to your individual circumstances. Pursuant to Treasury Department (IRS) Circular 230 Regulations, any federal tax advice contained here is not intended or written to be used, and may not be used, for the purpose of avoiding tax-related penalties or promoting, marketing or recommending to another party any tax-related matters addressed herein.

USDA is an equal opportunity provider, employer, and lender. Rural Tax Education is part of the National Farm Income Tax Extension Committee.  The land-grant universities involved in Rural Tax Education are affirmative action/equal opportunity institutions.

This material is based upon work supported by the U.S. Department of Agriculture, under agreement number FSA21CPT0012032. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Agriculture. In addition, any reference to specific brands or types of products or services does not constitute or imply an endorsement by the U.S. Department of Agriculture for those products or services.

Revised August 2025

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