The federal estate and gift tax exemption for 2026 is $15 million per person, or up to $30 million for a married couple who use portability. The One Big Beautiful Bill Act, signed on July 4, 2025, wrote that $15 million figure into the tax code as a permanent floor, replacing what would have been a scheduled drop to roughly $7 million per person at the end of 2025.1Internal Revenue Service. What’s New – Estate and Gift Tax Starting in 2027, the amount will be adjusted upward for inflation using 2025 as the base year, rounded to the nearest $10,000.2Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax
What the $15 Million Actually Covers
The $15 million is a lifetime, cumulative number. It’s the total value of assets you can transfer, either by gift during your life or by bequest at death, before federal estate or gift tax is owed. The exemption works through the unified credit, which converts the $15 million exclusion into a dollar-for-dollar offset against the tax that would otherwise apply. No tax is due until your cumulative taxable transfers cross the threshold.
Every taxable gift you make during your lifetime reduces what’s left of the exemption at death. If you use $4 million in taxable gifts over your lifetime, your estate has $11 million of exemption remaining. The IRS tracks this running total through the gift tax returns you file along the way, which is why reporting large gifts matters even when no tax comes due at the time of the gift.
The $19,000 Annual Exclusion
Separate from the lifetime exemption, you can give up to $19,000 per recipient per year without filing a gift tax return and without using any of your $15 million.3Internal Revenue Service. Gifts and Inheritances There is no cap on the number of recipients. Fifty $19,000 checks to fifty different people in a single year produce no tax consequence and no filing.
The gift has to be a present interest, meaning the recipient can use or enjoy the property right away. Gifts with delayed access, including certain trust arrangements, don’t qualify for the annual exclusion.4Office of the Law Revision Counsel. 26 USC 2503 – Taxable Gifts
Married couples can double the annual exclusion by electing to split gifts, treating each gift as if half came from each spouse. That brings the effective annual number to $38,000 per recipient.5Office of the Law Revision Counsel. 26 USC 2513 – Gift by Husband or Wife to Third Party Both spouses must consent, and once elected, the split applies to all gifts either spouse makes that year.
Transfers That Don’t Count Against Either Number
Some transfers sit entirely outside the gift and estate tax system. They don’t use annual exclusion, and they don’t chip away at the $15 million.
Spouse and Charity
Transfers to a U.S. citizen spouse are unlimited, whether made during life or at death.6Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse The unlimited marital deduction does not apply to a non-citizen spouse. Instead, annual gifts to a non-citizen spouse are capped at $194,000 for 2026, and deferral of estate tax on larger transfers generally requires a Qualified Domestic Trust.7Internal Revenue Service. Rev. Proc. 2025-32
Gifts to qualifying charities are also fully deductible with no cap, and the same treatment applies to charitable bequests at death.8Office of the Law Revision Counsel. 26 USC 2522 – Charitable and Similar Gifts
Direct Tuition and Medical Payments
Paying tuition directly to a school or medical bills directly to a provider is completely exempt from gift tax with no dollar limit and no reporting requirement.4Office of the Law Revision Counsel. 26 USC 2503 – Taxable Gifts The word “directly” is doing real work here. Reimbursing someone after they paid the bill themselves does not qualify. For education, the exclusion covers tuition only, not room, board, or books. For medical care, it covers treatment and health insurance premiums but not general wellness expenses.
These payments stack on top of the annual exclusion. You could pay a grandchild’s $60,000 tuition bill directly to the university and still give that grandchild $19,000 in cash the same year, all without touching your lifetime exemption.
What Happens Above $15 Million
Once cumulative taxable transfers exceed the exemption, the federal government taxes the excess on a progressive scale. The rate starts at 18% on the first $10,000 above the exemption and climbs through several brackets, topping out at 40% on amounts more than roughly $1 million above the threshold.9Office of the Law Revision Counsel. 26 US Code 2001 – Imposition and Rate of Tax Because the schedule is progressive, only the slice inside each bracket pays that bracket’s rate. The 40% top rate has been in place since 2013 and was not changed by either the Tax Cuts and Jobs Act or the One Big Beautiful Bill Act.
In practice, an estate that goes over the exemption by any meaningful amount reaches the 40% bracket quickly. Real planning leverage comes from using deductions, exclusions, and portability rather than trying to land in a lower bracket.
Portability: How Couples Reach $30 Million
When a married person dies without using their full $15 million, the surviving spouse can claim the unused portion, called the Deceased Spousal Unused Exclusion, or DSUE. Combined with the survivor’s own exemption, that can shelter up to $30 million.2Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax
Portability is not automatic. The executor of the deceased spouse’s estate must file Form 706, the federal estate tax return, and affirmatively elect portability, even if the estate is small enough that no return would otherwise be required and no tax is owed. The regular deadline is nine months after the date of death, with an automatic six-month extension available on Form 4768. For estates that fall below the normal filing threshold, Revenue Procedure 2022-32 allows a simplified late election up to five years after the date of death.10Internal Revenue Service. Frequently Asked Questions on Estate Taxes
Missing the election is expensive because there is no way to recover a deceased spouse’s exemption after the deadline. Portability also applies only to the last deceased spouse, so remarriage and a second widowhood can overwrite a prior DSUE amount.
When You Have to File Form 709
Any gift to a single recipient that exceeds the $19,000 annual exclusion has to be reported on IRS Form 709, even when no tax is owed because lifetime exemption is still available.11Internal Revenue Service. Instructions for Form 709 Splitting gifts with a spouse also triggers a filing, regardless of the dollar amounts. Direct tuition and medical payments do not need to be reported at all.
Form 709 requires a description of each gift, its fair market value at the time of transfer, the donor’s adjusted basis, and identifying information for both parties.11Internal Revenue Service. Instructions for Form 709 For real estate, closely held business interests, and other hard-to-value assets, the valuation on the return is where most IRS disputes originate. A 20% accuracy-related penalty applies to substantial valuation understatements on top of any additional tax owed.12Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
The return is due by April 15 of the year following the gift. An income tax extension on Form 4868 automatically extends the gift tax return as well, and a standalone six-month extension is available on Form 8892.13Internal Revenue Service. About Form 8892, Application for Automatic Extension of Time To File Form 709 An extension buys time to file the paperwork; any tax owed is still due by the original April date.
Why Gifting Isn’t Always the Right Move
The higher exemption tempts some families to move assets out of the estate during life. Basis is the reason not to do that reflexively. When an heir inherits property, the tax basis resets to fair market value on the date of death.14Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired from a Decedent Stock a parent bought for $50,000 and held until it was worth $500,000 at death passes to the heir with a $500,000 basis. Sell it the next day, and there’s no capital gains tax on the $450,000 of appreciation.
Give that same stock during life, and the recipient takes your $50,000 basis with it. When they eventually sell, they owe capital gains tax on the full appreciation. For highly appreciated real estate or long-held securities, the step-up at death often saves more in capital gains tax than a lifetime gift saves in estate tax, especially with a $15 million exemption already shielding most families from any estate tax at all.
Not every asset gets a step-up. Retirement accounts and other income in respect of a decedent keep their built-in tax; an inherited IRA still generates ordinary income tax on withdrawals. Assets in irrevocable trusts where the original owner gave up all control generally don’t step up either, based on Revenue Ruling 2023-2.
Grandchildren and the Generation-Skipping Tax
The generation-skipping transfer tax is a separate levy that applies when you transfer assets to grandchildren or more remote descendants. Its 2026 exemption is also $15 million, tracked separately from the estate and gift tax exemption, with a flat 40% rate above that amount.7Internal Revenue Service. Rev. Proc. 2025-32 A large transfer to a grandchild can trigger both gift tax and generation-skipping tax at once, so allocation matters when the numbers get big.
State Estate Taxes Are a Different Question
The $15 million federal exemption doesn’t shield you from state estate tax. Roughly a dozen states and the District of Columbia impose their own estate taxes, some with exemptions starting as low as $1 million. An estate that owes nothing to the IRS can still face a six-figure state bill, with top state rates generally in the 10% to 20% range. Most of these states don’t offer portability between spouses, so married couples in those jurisdictions often need trust planning built around the state exemption at the first death rather than relying on federal-style survivorship.