For many people, the word estate can conjure rarified visions of mansions set amidst expansive lawns in exclusive communities, and when it comes to federal estate tax, those visions may be somewhat accurate.<\/p>\n\n\n\n
The federal estate tax, a tax levied on property bequeathed to heirs, does not affect 99.9% of Americans since fewer than 1 in 1,000 estates are even wealthy enough to be affected by it.<\/p>\n\n\n\n
Just how wealthy, you wonder? For 2026, an estate isn’t subject to federal estate tax unless its value exceeds $15 million per person. That’s $30 million for a married couple.<\/p>\n\n\n\n
The federal estate tax is a tax on your right to transfer property at your death. The IRS begins with an accounting of everything you owned or had an interest in on the date of death. That total is your gross estate.<\/p>\n\n\n\n
The gross estate can include cash and securities, real estate, life insurance, trusts, annuities, business interests, retirement accounts, and personal property.<\/p>\n\n\n\n
Assets are valued at fair market value on the date of death, not at what you paid for them. That date-of-death value also becomes your heirs’ cost basis, which is why inherited property receives what is commonly called a step-up in basis.<\/p>\n\n\n\n
Certain deductions are subtracted to arrive at the taxable estate. These include mortgages and other debts, estate administration expenses, property passing to a surviving spouse, and property passing to a qualified charity. Operating businesses and farms may qualify for a reduced valuation.<\/p>\n\n\n\n
Once you have the taxable estate, the IRS adds back the value of any taxable gifts you made during your lifetime, going back as far as 1977. It then computes the tax and reduces it by whatever unified credit you have available.<\/p>\n\n\n\n
The 2017 Tax Cuts and Jobs Act doubled the exemption from roughly $5.5 million per person to $11.2 million. That increase was temporary. It was scheduled to expire at the end of 2025, which would have returned the exemption to its $5 million base from 2011. Indexed for inflation, that base would have landed at roughly $7 million in 2026.<\/p>\n\n\n\n
The One Big Beautiful Bill Act changed that. The exemption is $15 million per individual for 2026. It is now permanent and remains indexed for inflation.<\/p>\n\n\n\n
This exemption is unified with the lifetime gift tax exemption. Taxable gifts made during your lifetime reduce the amount available at death.<\/p>\n\n\n\n
Federal estate tax rates range from 18% to 40%. The rate increases as the taxable amount rises above the exemption.<\/p>\n\n\n\n
Estates subject to the estate tax generally pay far less than that top rate, though. According to the Center on Budget and Policy Priorities, taxable estates will owe about 14.1 percent of their value in tax in 2026, on average.<\/p>\n\n\n\n
The gap exists for a few reasons. Estate taxes apply only to the portion above the exemption, so an estate worth $16 million would owe tax on $1 million at most. Several provisions also reduce liability. The minority ownership discount allows an estate holding a minority share of a business to value that share below fair market value. Farm owners may use special-use valuation to value land based on its current farming use rather than its most profitable potential use.<\/p>\n\n\n\n
There are some who have found legal loopholes in the estate tax law that allow them to avoid what could otherwise be many millions of dollars in federal estate tax. These loopholes are often characterized by experts as a “heads I win, tails we tie,” proposition. Grantor retained annuity trusts (GRATs), for example, work on this principle and are favorite tax shelters for wealthy estates. This particular loophole protects wealthy estates from paying taxes on stocks or other high-end assets that rapidly skyrocket in value.<\/p>\n\n\n\n
Yes, through two separate provisions.<\/p>\n\n\n\n
Unlimited marital deduction.<\/strong> Property passing to a surviving spouse is generally not subject to estate tax. Anything the surviving spouse still owns at their own death is included in their estate, including amounts previously exempted.<\/p>\n\n\n\n Portability of the unused exemption.<\/strong> Since 2011, a surviving spouse has been able to claim whatever exemption their late spouse didn’t use, and that’s where the combined $30 million figure for couples actually comes from.<\/p>\n\n\n\n Portability is not automatic. The executor has to elect it on Form 706, even if the estate otherwise wouldn’t need to file. Estates that weren’t required to file can make a late election up to five years after the date of death under Rev. Proc. 2022-32.<\/p>\n\n\n\n Roughly a dozen states and the District of Columbia levy an estate tax in addition to the federal one. State thresholds are considerably lower:<\/p>\n\n\n\n It’s important to understand that the $15 million federal exemption does not protect you from state estate tax. A $2.5 million estate owes the IRS nothing. In Massachusetts, that same estate owes the state.<\/p>\n\n\n\n Most states base the tax on where the person lived when they died, though owning real estate somewhere else can pull an estate into that state’s tax as well.<\/p>\n\n\n\n Estate tax is paid by the estate before assets are distributed. Inheritance tax is paid by the person receiving the assets.<\/p>\n\n\n\n Inheritance tax exists only at the state level, in a small number of states. Rates generally depend on the heir’s relationship to the deceased. A surviving spouse is usually exempt, while more distant relatives and unrelated heirs face the highest rates.<\/p>\n\n\n\n Maryland is the only state that charges both.<\/p>\n\n\n\n The federal estate tax return is Form 706. It is due nine months after the date of death. A six-month filing extension is available.<\/p>\n\n\n\n Any tax owed is still due on the original deadline unless the IRS grants a separate extension to pay.<\/p>\n\n\n\n Most estates never need to file. For U.S. citizens and residents, a return is generally required when the gross estate plus adjusted taxable gifts and any applicable specific exemption exceeds the $15 million threshold, or when the executor wants to elect portability.<\/p>\n\n\n\n Only a tiny fraction of the American population will ever have to concern themselves with federal estate tax. The thinking behind the tax is that those enjoying the benefits of extreme wealth should shoulder a greater tax burden in contributing to the federal government’s job to “promote the general welfare” as articulated in the preamble to the U.S. Constitution. The primary opposing argument to the estate tax is that the cash and assets included in most estates has already been taxed at least once.<\/p>\n\n\n\n Though tax laws may be complicated, filing your taxes shouldn’t be. At E-File.com you’ll find ease of access, filing simplicity, and free, professional tax support to make tax time painless and to deliver the highest possible refund.<\/p>\n\n\n\n Note: Tax laws may change with little notice. We do our best to keep this information current, but it is provided on an “AS IS” basis. It should not be considered, legal, financial, or other professional guidance. For more, see our terms.<\/p>\n","protected":false},"excerpt":{"rendered":" The federal estate tax affects very few Americans, but the rules can be confusing. Learn who pays it, the 2026 exemption, and how it works.<\/p>\nWhich States Charge Their Own Estate Tax?<\/h2>\n\n\n\n
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What Is the Difference Between Estate Tax and Inheritance Tax?<\/h2>\n\n\n\n
When Is Form 706 Due?<\/h2>\n\n\n\n