IRS Announces Inflation-Linked Tax Adjustments for 2027

The Internal Revenue Service has released Revenue Procedure 2026-35, outlining inflation-based increases for dozens of federal exemptions, credits, and deductions that will apply in 2027.

For estate planners and their clients, the most notable change is the higher unified gift and estate tax exemption. Under the One Big Beautiful Bill Act, that exemption was set at $15 million for 2026. In 2027, it will climb to $15.48 million. Taxpayers may apply the exemption to taxable gifts made during life, and any portion not used during life can later be used against the estate tax at death. For example, if a taxpayer uses $10.48 million for lifetime gifts, $5 million would remain available at death as an estate tax exemption. Only estates above that level would face the 40 percent estate tax.

The exemption for the generation-skipping transfer tax will also rise to $15.48 million in 2027. That tax applies to transfers that skip a generation, such as gifts to grandchildren or great-great grandchildren, or trusts established for their benefit. The Act also tied the GST exemption to the gift and estate tax exemption, meaning it will increase automatically when the unified exemption rises.

One of the most practical changes for many taxpayers is the annual exclusion amount, which allows gifts to be made free of transfer tax up to a certain limit for each recipient other than a spouse or charity. This figure is indexed to inflation and increases only in $1,000 steps. After holding at $19,000 per recipient for several years, the annual exclusion will increase to $20,000 in 2027. As an example, a married couple with five children could give each child $40,000 per year and remove $200,000 from their taxable estates.

Although not a wealth transfer tax change, another inflation adjustment will affect income taxes. The top federal income tax rate will remain 37 percent in 2027, but the income thresholds will rise. For single filers, the top bracket will begin at $661,375, up from $640,601. For married couples filing jointly, the threshold will increase to $793,650 from $768,701.