Takeaways
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The federal estate tax exemption rises to $15,480,000 in 2027, up from $15 million in 2026.
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The annual gift tax exclusion increases to $20,000 per recipient, or $40,000 for married couples who gift-split, up from $19,000 per recipient, or $38,000 for married couples who gift-split.
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Even if you’re below the federal limits, some states have their own estate or inheritance taxes, so review your estate plan and keep records of gifts.
Gift and estate tax exclusions for the tax year 2027 have been finalized. Each year, the Internal Revenue Service (IRS) recalibrates these thresholds to account for inflation. The following figures become effective January 1, 2027. They will apply to gifts made and decedents dying in the calendar year 2027.
What Is the Federal Estate Tax Exemption?
The federal estate tax exemption establishes the value of assets a person can pass on at death, and/or give away during life, without owing federal estate or gift tax. For 2027, this threshold will increase from $15,000,000 in 2026 to $15,480,000.
This exemption will govern estates of decedents who die during calendar year 2027. If the estate plus prior taxable gifts falls below this threshold, a federal estate tax will not apply.
To note: some states may still apply a state estate or inheritance tax. Always review the specifics of the state you live in.
What Is the Federal Gift Tax Exemption?
The federal gift tax typically applies to lifetime transfers of money or property where the person transferring (or “gifting”) the asset receives nothing or less than the full value in return. This includes items such as cash, checks, real estate, stocks and bonds, vehicles, jewelry, and more.
The person giving the gift, not the person receiving it, is generally responsible for any tax. A gift tax return (Form 709) is generally required if the amount given to any one person exceeds the limit set by the IRS. In other words, the annual gift tax exclusion is the amount any one gift-giver can give to any one recipient in that calendar year before a gift tax return is required.
In 2027, this annual gift tax exclusion number will increase to $20,000, up from $19,000 for 2026.
This number is per person. An individual may gift greater than $20,000 total in a year, as long as each gift is to a different recipient. Married couples can elect to “gift-split” if they wish. Doing so means they can effectively give up to $40,000 per recipient, but the election requires filing Form 709 even if no tax is due.
Qualifying gifts between spouses who are both U.S. citizens typically do not trigger the gift tax. Legally married U.S. citizen spouses can generally pass unlimited amounts between each other during life and upon death.
However, if your spouse is not a U.S. citizen, the rules change slightly. The annual exclusion for gifts to a non-U.S. citizen spouse is $201,000 for calendar year 2027, up from $194,000 in 2026.
To note: even if you exceed the gift tax allowance, you don't automatically need to pay tax on the gift. Instead you must report the gift on a separate Form 709, generally due April 15 of the following year. Whether you pay a tax depends on if you've exceeded your lifetime exemption.
Lifetime Exemption vs. Annual Exclusion: How They Work Together
The annual gift tax exclusion and the lifetime estate and gift tax exemption are frequently confused.
The annual exclusion is the $20,000 noted above. This is the amount you can give to any individual each year in qualifying gifts without any tax consequences. Additionally, you do not need to file any paperwork. If you give $20,000 to each of your three children, that’s $60,000 total — all tax-free, with no forms to file and no impact on your lifetime exemption.
The lifetime exemption is $15,480,000. This comes into play when a gift to one person exceeds the annual exclusion in a given year.
For example, if you give your child $100,000 in 2027 the first $20,000 is covered by the annual exclusion. The remaining $80,000 doesn’t trigger an immediate tax bill, however. Instead, it counts against your $15,480,000 lifetime exemption, and you’d need to file Form 709 to report it.
This is a critical distinction many people miss: exceeding the annual exclusion does not automatically mean you owe gift tax. In 2027, it’s only after your cumulative lifetime gifts plus your taxable estate at death exceed $15,480,000 that the federal gift or estate tax actually applies.
This system gives most families significant flexibility. A parent who wants to help an adult child with a down payment, for instance, can likely do so without owing any tax. They’d simply file aForm 709 noting the amount of the gift, leaving the rest of their lifetime exemption available.
Understanding this two-tiered system helps families make smarter decisions about when to give. For most people, the lifetime exemption is so high that gift tax is not a practical concern. But because gifts above the annual exclusion still need to be reported, keeping accurate records throughout the year helps avoid confusion or missed filings.
This is especially important for gifts of property, business interests, or other assets whose value may not be immediately obvious.
Next Steps: Planning Around the 2027 Gift and Estate Tax Limits
Even if it’s unlikely your estate or your gifts will exceed the federal gift or estate tax thresholds in 2027, planning ahead is vital.
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Estimate Your Net Worth. Many people are surprised by how much their assets add to. This includes homes, investments, retirement accounts, business interests, life insurance (including both paid sums and the value of any accounts you own or control), and so on.
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Check Your State’s Rules. As mentioned above, some states have their own estate or inheritance taxes. Even if your assets fall far below the federal limit, you may still owe state tax.
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Keep a record of any gifts you make during the calendar year. If you make a gift larger than the annual exclusion, you generally need to file Form 709. Keeping accurate records is key.
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Coordinate Gifts with Your Spouse. Decide ahead of time whether you and your spouse will elect to “gift-split.” Doing so requires both to consent and, in most cases, file Form 709. Generally, only the donor spouse files, with the other spouse's consent attached. Once you elect to gift-split, that election applies to all gifts made by either spouse during the calendar year.
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Consider Whether an Irrevocable Trust Fits Your Plan. If you expect to make gifts well above the annual exclusion, a trust could offer added protection, control, or tax efficiency compared to an outright gift directly to a beneficiary. Gifts in trust generally need to be reported on Form 709 and may not qualify for the annual exclusion, depending on how the trust is structured. Speak with an estate planning attorney about your options.
As the year winds to an end, it’s a good time to reevaluate major life events that may have occurred this year. Review your estate plan in light of any births, deaths, marriages, divorces, and other changes as you prepare to enter 2027.
Common Mistakes to Avoid
Even with a high lifetime exemption, people still run into trouble with gift and estate tax rules. Here are a few common mistakes to be aware of:
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Assuming a gift over $20,000 in 2027 means you owe tax right away. This is one of the biggest points of confusion. Going over the annual exclusion doesn’t trigger an immediate tax bill — it just means the extra amount is subtracted from your lifetime exemption. You’ll need to file Form 709, but in most cases, no actual tax is due.
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Forgetting that non-cash arrangements can count as gifts. For example, letting an adult child live rent-free in a home you own. These situations are easy to overlook because no money changes hands, or the arrangement feels informal. Still, the IRS can treat them as gifts.
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Not realizing the rules differ for a non-citizen spouse. Gifts between spouses who are both U.S. citizens are typically unlimited and tax-free. If your spouse is not a citizen, a separate limit applies instead — $201,000 for 2027.
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Failing to file Form 709 even if no tax is owed. This is perhaps the most common, and most avoidable, mistake. Even if a gift is fully covered by your lifetime exemption and no tax is due, you must still file the correct form.
Most of these mistakes come down to incomplete reporting, not actual tax owed. Keeping good records can save you from paperwork surprises down the road.
Looking Ahead
For years, estate planners urged clients to use their gift and estate tax exemptions before they potentially shrank. Because of recent changes, however, that urgency has eased.
The 2017 Tax Cuts and Jobs Act originally doubled the exemption amount, but was scheduled to expire after 2025. In July 2025, Congress enacted the One Big Beautiful Bill Act (OBBBA). This made the higher exemption amounts permanent beginning in 2026, although an act of Congress can always lead to another change.
The Act accounts for continued annual inflation adjustments moving forward. Unlike prior law, there is no scheduled expiration date built into the current amounts.
Despite this, it is important to remember that laws can always change. A future Congress could vote to lower the exemption at any time. Regularly review the current numbers and speak with an estate planning attorney if needed.
Summary and Additional Reading:
Gift and estate tax exclusions will rise in 2027 according to a recent IRS announcement. Keeping diligent records of your assets and gifts throughout the calendar year is vital come tax time.
State rules may differ from federal ones, so it’s worth reviewing your own state’s estate or inheritance tax and checking in with an estate planning attorney as your circumstances change.
