The One Big Beautiful Bill, signed into law on July 4, 2025, set the federal estate tax exemption at $15 million per person for deaths occurring on or after January 1, 2026, and eliminated the scheduled sunset that would have cut the exemption roughly in half. A married couple who properly elects portability can shield up to $30 million from federal estate tax. Amounts above the exemption are taxed at graduated rates that effectively reach 40 percent.1Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax
The New $15 Million Exemption
Under 26 U.S.C. § 2010(c)(3), as amended, the basic exclusion amount is $15 million per individual starting in 2026. That is up from $13.99 million in 2025 and is the highest exemption in the history of the federal estate tax. If your total estate is worth less than $15 million, no federal estate tax is owed. If it exceeds that figure, only the excess is taxed.
For context, the exemption was $5.49 million as recently as 2017 before the Tax Cuts and Jobs Act roughly doubled it. Fewer than one-tenth of one percent of estates owe any federal estate tax at all, but for those that do, the bill can be substantial.
What Happened to the TCJA Sunset
The Tax Cuts and Jobs Act of 2017 (Public Law 115-97) doubled the exemption on a temporary basis, with the increase set to expire after December 31, 2025.2Congress.gov. Public Law 115-97 Without new legislation, the exemption would have reverted to roughly $7 million per person in 2026 after inflation adjustments to the pre-2018 base. Estates that had been comfortably below the threshold would suddenly have owed tax.
The One Big Beautiful Bill (Public Law 119-21) amended the statute to set the exemption at $15 million and carries no built-in expiration date.3Internal Revenue Service. What’s New — Estate and Gift Tax A future Congress can revisit the figure, but nothing forces it to drop on a scheduled date the way the 2017 law would have.
Rates on Amounts Above $15 Million
Only value above the exemption is taxed. The rates in 26 U.S.C. § 2001 are graduated, starting at 18 percent and topping out at 40 percent on amounts more than $1 million above the exemption.4Office of the Law Revision Counsel. 26 U.S. Code 2001 – Imposition and Rate of Tax The lower brackets are consumed so quickly that most taxable estates end up paying close to the 40 percent rate on the bulk of the excess.
Consider a $20 million estate belonging to an unmarried individual. The first $15 million is exempt. The remaining $5 million generates roughly $1.95 million in federal estate tax, most of it at the 40 percent top rate.
How a Couple Reaches $30 Million: Portability
When one spouse dies without using their full exemption, the unused portion, known as the Deceased Spousal Unused Exclusion, can transfer to the surviving spouse. That is what allows a married couple to combine exemptions up to $30 million. Portability is not automatic. The executor of the first spouse’s estate must file IRS Form 706 to make the election, even when the estate is small enough that no tax is owed.
Skipping that filing is one of the most expensive mistakes in estate tax planning. If a spouse dies with a $2 million estate and no Form 706 is filed, the surviving spouse loses access to the remaining $13 million of unused exemption. It disappears permanently.
Filing Deadlines
Form 706 is normally due nine months after the date of death. If the estate owes tax, missing that deadline triggers a failure-to-file penalty of 5 percent of the unpaid tax per month, up to 25 percent.5Internal Revenue Service. Failure to File Penalty
For estates that only need to file to elect portability and are not otherwise required to file, Revenue Procedure 2022-32 gives up to five years from the date of death. The return must be complete, properly prepared, and marked at the top as filed under Rev. Proc. 2022-32.6Internal Revenue Service. Instructions for Form 706
Lifetime Gifts Still Feed the Same Exemption
The estate tax and gift tax share one unified exemption. Every dollar you give away during your lifetime above the annual exclusion counts against your $15 million lifetime amount. For 2026, the annual gift exclusion is $19,000 per recipient. A married couple can double that to $38,000 per recipient by gift-splitting.7Internal Revenue Service. Frequently Asked Questions on Gift Taxes
The annual exclusion applies separately to each recipient. Ten $19,000 checks to ten different people trigger no gift tax return and use none of the lifetime exemption. Used consistently over years, this is one of the simplest ways to shrink a taxable estate.
Unlimited Payments for Tuition and Medical Care
On top of the annual exclusion, you can pay unlimited amounts for another person’s tuition or medical expenses without gift tax consequences, provided the payment goes directly to the school or medical provider. Reimbursing the person after they pay does not qualify.
Qualifying tuition covers any grade from elementary through graduate school but not room and board, books, or tutoring. Qualifying medical payments include care, prescription drugs, and health insurance premiums. These payments do not count as gifts at all and do not reduce your lifetime exemption.
Past Large Gifts Are Protected
Anyone who made large gifts during the temporarily doubled TCJA window can rest easy. Under final regulations issued as Treasury Decision 9884, estates calculate their credit using whichever exemption was higher, the one that applied when the gift was made or the one in effect at death.8Internal Revenue Service. Final Regulations Confirm: Making Large Gifts Now Won’t Harm Estates After 2025
The One Big Beautiful Bill raised the exemption rather than letting it fall, so the anti-clawback rule did not get tested in the way planners feared. It still matters. If a future Congress reduces the exemption, gifts made under the higher exemption remain protected.
Stepped-Up Basis Survived Unchanged
For most families, the income tax treatment of inherited assets is more valuable than the estate tax exemption itself. Under 26 U.S.C. § 1014, most property inherited from a decedent receives a new tax basis equal to its fair market value on the date of death. Stock a parent bought for $50,000 that is worth $500,000 at death passes to the heir at the $500,000 value, and the $450,000 of accumulated gain disappears for income tax purposes.
Stepped-up basis applies to real estate, stocks, business interests, and most other assets passing through an estate. It does not apply to retirement accounts like IRAs and 401(k)s, which are taxed as income when withdrawn. Assets in irrevocable trusts where the original owner gave up all control generally do not qualify either, a point the IRS clarified in Rev. Rul. 2023-2.
The One Big Beautiful Bill left stepped-up basis alone. Proposals to eliminate or limit it appear in Congress regularly but have not been enacted.
State Estate and Inheritance Taxes Are Separate
Roughly a dozen states plus the District of Columbia impose their own estate taxes, and a handful of states levy inheritance taxes. The federal exemption change does not touch these. State exemption thresholds are typically far lower than $15 million, with some starting as low as $1 million. An estate that owes nothing to the IRS can still face a substantial state tax bill depending on where the decedent lived or owned property. If your state has its own estate or inheritance tax, check those thresholds separately.