Publication 950: An Introduction to Estate and Gift Tax

The federal government imposes taxes on large transfers of wealth, both during a person’s lifetime and at their death. The Internal Revenue Service provides guidance on these complex rules through Publication 950, “Introduction to Estate and Gift Taxes,” which serves as a resource for individuals navigating this area. This publication offers a general overview of when these taxes apply for those planning their estates or managing the financial affairs of a person who has passed away.

Key Concepts of the Federal Gift Tax

The federal gift tax centers on the concept of a “gift,” which the IRS defines as any transfer to an individual where full value is not received in return. This can include direct transfers of cash or property, selling something for less than its fair market value, or providing an interest-free loan. While any gift is potentially taxable, numerous exceptions and exclusions mean that most do not result in a tax liability.

A feature of the gift tax system is the annual exclusion. For 2025, an individual can give up to $19,000 to any number of people without incurring a gift tax or needing to file a gift tax return. Married couples can combine their exclusions, allowing them to give up to $38,000 per recipient in 2025.

Beyond the annual exclusion, certain transfers are not considered taxable gifts. Direct payments made to an educational institution for tuition or to a medical provider for another person’s medical care are exempt. These payments must be made directly to the qualifying institution to qualify. Additionally, gifts to a U.S. citizen spouse, political organizations, or qualifying charities are also excluded from the gift tax.

Fundamentals of the Federal Estate Tax

The federal estate tax is a tax on the transfer of property at death. The process begins by calculating the “gross estate,” which is a comprehensive accounting of everything a person owns or has certain interests in at their date of death, valued at fair market value. This includes assets like cash, securities, real estate, and business interests, as well as assets that may not go through probate, such as life insurance proceeds and certain annuities or trusts.

From the gross estate, certain deductions are allowed to arrive at the “taxable estate,” which reduces the value subject to tax. The unlimited marital deduction allows for the unlimited transfer of assets to a surviving spouse who is a U.S. citizen without any estate tax.

Other deductions from the gross estate include:

• Bequests to qualified charitable organizations.
• Funeral expenses.
• Administrative expenses incurred in settling the estate.
• Claims against the estate, such as outstanding debts.
• Mortgages on property where the full value is included in the gross estate.

These deductions lower the final amount on which the estate tax is calculated.

The Unified Credit Against Estate and Gift Taxes

The estate and gift tax systems are linked by a “unified credit,” a lifetime exemption that can be applied against taxable gifts and the taxable estate. For 2025, the basic exclusion amount is $14.11 million per individual. This high exemption amount is temporary and is scheduled to be reduced significantly at the end of 2025, reverting to a pre-2018 level of approximately $7 million after inflation adjustments.

When an individual makes a taxable gift that exceeds the annual exclusion, they must file a gift tax return. While tax may not be due immediately, the taxable gift amount reduces the lifetime unified credit available for future gifts or the estate. At death, the total of all taxable gifts is added to the taxable estate, a tentative tax is computed, and the remaining unified credit is applied.

Portability allows a surviving spouse to use their deceased spouse’s unused unified credit. This is not automatic and must be elected by filing an estate tax return for the deceased spouse, even if one is not otherwise required. This provision allows a married couple to combine their exemptions.

Estate and Gift Tax Return Filing Obligations

The requirement to file a gift tax return, Form 709, is triggered by specific actions. A return must be filed if you give gifts to any single person (other than your U.S. citizen spouse) that total more than the annual exclusion amount. Even if no tax is due because of the unified credit, a return is required to report the taxable gift and track the use of the lifetime exemption. A Form 709 is also necessary to “split” gifts with a spouse, treating a gift as if made one-half by each. The due date for Form 709 is April 15 of the year after the gift was made.

The executor of a decedent’s estate must file an estate tax return, Form 706, if the gross estate plus any lifetime taxable gifts exceeds the unified credit exemption amount for the year of death. A return may also be filed for smaller estates to elect portability of the deceased spousal unused exclusion (DSUE) to the surviving spouse. The estate tax return is due within nine months after the decedent’s death, though a six-month extension can be requested by filing Form 4768.