While many tax figures, such as exclusions or penalties, remain the same from year to year, there are certain numbers that are adjusted typically on annual basis, taking into account inflation and cost-of-living increases.
Under newly released Rev. Proc. 2024-40, the following expat-related adjustments will apply in 2025:
Inflation Adjustments for Foreign Tax Items
Foreign earned income exclusion. If you are able to establish that your tax home is outside the U.S. and can satisfy either the bona fide residence test or the physical presence test, you can exclude from income a portion of your income earned overseas. The foreign earned income exclusion amount will be $130,000 in 2025 ($126,500 in 2024).
Foreign gift reporting. For gifts from a nonresident alien individual or foreign estate, reporting on Form 3520 is required only if the aggregate amount of gifts from that person exceeds $100,000 during the tax year. This number does not generally adjust for inflation. However, for gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $20,116 in 2025 ($19,570 for 2024).
Exit tax for renouncers. One of the significant tax implications of renouncing one’s U.S. citizenship is the so-called “exit tax,” which is triggered if any of the below are true:
- You fail to certify to the IRS that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation.
- Your net worth is $2 million or more on the date of your expatriation.
- Your average annual net income tax for the 5 years ending before the date of expatriation is more than a specified amount that is adjusted for inflation. For 2025, this amount will be $206,000 ($201,000 for 2024).
Also, for 2025, the amount that would otherwise be includible in the gross income of any individual subject to the exit tax will become reducible by $890,000 ($866,000 for 2024).
Inflation Adjustments for Other Tax Items
The standard deduction. While this is an item with broader scope than the international tax domain, the standard deduction often becomes relevant for U.S. expats without sufficient foreign exclusion or foreign tax credits to fully reduce their U.S. tax liability. The basic standard deduction for 2025 will be:
Joint return - $30,000 ($29,200 for 2024)
Single - $15,000 ($14,600 for 2024)
Head of household - $22,500 ($21,900 for 2024)
Married filing separate - $15,000 ($14,600 for 2024)
Lifetime estate and gift tax exclusion amount. For gifts made and estates of decedents dying in 2025, the exclusion amount will be $13,990,000 ($13,610,000 for gifts made and estates of decedents dying in 2024). Importantly, the exclusion amount is set to reduce significantly starting in 2026 when certain provisions of the Trump Tax Reform sunset (at the end of 2025). It’s estimated that without governmental action extending the tax reform, the exclusion will be reduced to approximately $7 million.
Gift tax annual exclusion. For gifts made in 2025, the gift tax annual exclusion will be $19,000 ($18,000 in 2024). The annual exclusion for gifts to noncitizen spouses will be $190,000 in 2025 ($185,000 for 2024).
