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On November 2024, the IRS announced the revised federal estate tax and gift tax limits for 2025. The federal estate tax limit will rise from $13.61 million in 2024 to $13.99 million in 2025. The federal gift tax limit will jump from $18,000 in 2024 to $19,000 in 2025. Maryland, state estate tax limits will stay at $5 million.
Federal Estate Taxes
For 2025, the federal estate tax limit increases to $13.99 million for an individual and $27.98 million for a couple. A deceased person owes federal estate taxes on a taxable estate. The taxable estate is the gross estate minus allowable expenses and deductions. For example, a couple with a taxable estate of $28 million passes away in 2025. The couple’s heirs may exempt up to $27.98 million from federal estate taxes and only owe federal estate taxes on $200,000. Since the federal estate tax rate is 40 percent, the heirs would owe $80,000 in federal estate taxes plus state estate taxes depending on the state estate tax rates.
One last note on federal estate taxes: a surviving spouse has an unlimited marital deduction. The surviving spouse can include the predeceasing spouse’s unused federal estate tax limit in their federal estate tax limit. This concept is known as portability and provides strategies for estates that may be reaching the estate tax limits.
It is important to note that the current exemptions sunset on Jan. 1, 2026. Congress would need to extend the current exemptions, or we would have to revert to the prior exemptions. The prior exemption is estimated to be around $7 million in 2026.
Federal Gift Tax Limit
The federal gift tax limit goes up to $19,000 in 2025. Federal tax law allows each taxpayer to gift up to $19,000 per year to one individual without incurring federal gift taxes. This exemption is tied to inflation but can only increase to the nearest $1,000 amount. For a couple this would be $38,000 in gifting to an individual. Gifting strategies can be adopted by those individuals nearing the estate tax limits to reduce the value of their estates. Individuals should talk to their accountant and attorney to consider developing strategies that will minimize the impacts of estate taxes.
Maryland Estate Tax Limit
In 2018, Maryland’s state estate tax exemption was set at $5 million and will remain at $5 million until changed by the General Assembly. The state estate tax exemption for a couple in Maryland is $10 million. In 2018, the General Assembly allowed unused Maryland estate tax exemption portability, similar to federal portability. The maximum tax rate is 16 percent, and the Maryland inheritance tax remains unchanged.
In 2012, Maryland created a unique program exempting up to the first $5 million of qualified agricultural property from Maryland estate taxes. To be eligible, the agricultural property must remain in agriculture for the next ten years. To learn more about this program, see Lynch, Goeringer, and Musser.
How Does This Impact You?
Benjamin Franklin once wrote, “In this world, nothing can be said to be certain, except death and taxes.” With that in mind, farm families concerned about hitting the top federal or state estate tax exemption need to begin working on farm succession and estate plans to limit potential estate taxes down the road. Research from USDA’s Economic Research Service highlights that in 2023, 99 percent of U.S. farms would owe no estate taxes, with those farms being impacted by federal estate taxes being less than 1 percent.
Working with a tax advisor early on can help limit your taxes and devise a tax plan to keep the farm in operation for future generations. Failure to properly plan can force surviving family members to sell family assets to pay taxes on the inheritance. Along with a tax advisor, consider working with additional team members, such as an attorney and financial planner, to begin developing the family’s farm succession plan.
For those who need to develop estate tax plans, you should discuss with your farm succession team members if the increases in the estate tax limits impact your plan. Although this change may not affect your succession plan, it allows you to discuss other strategy in the farming operation over the past year.