Estate Tax Exemption 2026: $15M Cap, Gifts, and Portability

The federal estate tax exemption for 2026 is $15 million per individual, or $30 million for a married couple. That figure comes from the One Big Beautiful Bill Act, signed into law on July 4, 2025 as Public Law 119-21, which amended the basic exclusion amount under IRC Section 2010(c)(3).1Internal Revenue Service. What’s New – Estate and Gift Tax The top federal estate tax rate on amounts above the exemption stays at 40%.

Why the Exemption Jumped From $13.99 Million

The Tax Cuts and Jobs Act of 2017 roughly doubled the estate tax exemption, but the higher amount was scheduled to expire on December 31, 2025. Absent congressional action, the basic exclusion was set to revert to the pre-2018 level of $5 million adjusted for inflation, which experts projected at roughly $7 million for 2026.2Internal Revenue Service. Estate and Gift Tax FAQs

That sunset never happened. Instead, the exemption climbed:

Unlike the TCJA provision it replaced, the new $15 million amount does not sunset. It is permanent and will be adjusted for inflation starting in 2027.

What You Actually Owe Above the Exemption

The estate tax is not a flat 40% on everything above $15 million. It runs on a graduated schedule that starts at 18% on the first $10,000 of taxable value and climbs through twelve brackets before hitting the 40% top rate on amounts more than $1 million above the exemption.4Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax

Take a $17 million estate in 2026. Only $2 million is taxable. The first $1 million of that runs through the graduated rates and produces $345,800 in tax. The next $1 million is taxed at 40%, adding $400,000. Total federal estate tax: about $745,800. The effective rate on the taxable portion works out to roughly 37%, not the 40% top rate that headlines emphasize.

What Counts Toward Your Estate

The gross estate is broad. It includes the fair market value of everything you own or have an interest in at the time of death: real estate, bank and brokerage accounts, IRAs and 401(k)s, closely held business interests, personal property, and more.5Office of the Law Revision Counsel. 26 US Code 2031 – Definition of Gross Estate

Life insurance is the asset that catches families off guard most often. If you held any incidents of ownership over a policy at death (the right to change beneficiaries, borrow against it, cancel it, or assign it), the full death benefit gets added to your gross estate.6Office of the Law Revision Counsel. 26 US Code 2042 – Proceeds of Life Insurance A $3 million policy can push an otherwise non-taxable estate over the threshold.

The common workaround is an irrevocable life insurance trust (ILIT). When the trust owns the policy and you retain no incidents of ownership, the proceeds fall outside your taxable estate. One catch: if you transfer an existing policy to an ILIT and die within three years, the IRS pulls the full proceeds back into your estate.7Office of the Law Revision Counsel. 26 US Code 2035 – Adjustments for Certain Gifts Made Within 3 Years of Decedent’s Death Having the trust purchase a new policy from scratch avoids the three-year lookback.

Deductions That Reduce the Taxable Estate

The gross estate is a starting point, not the final number. Two deductions do most of the heavy lifting.

The unlimited marital deduction lets you leave any amount to a surviving spouse who is a U.S. citizen without triggering estate tax. A $50 million estate left entirely to a spouse owes nothing at the first death. The trade-off: those assets become part of the surviving spouse’s estate and may be taxed at the second death.

The unlimited charitable deduction works the same way for assets left to qualifying charities. There is no cap, and it reduces the taxable estate dollar for dollar. Between the $15 million exemption and these two deductions, most estates can be structured to owe little or no federal estate tax.

Lifetime Gifts Draw From the Same $15 Million

The estate and gift tax exemptions are unified. Every dollar you give away during life that exceeds the annual gift tax exclusion reduces the amount available to shelter your estate at death.1Internal Revenue Service. What’s New – Estate and Gift Tax

For 2026, the annual gift tax exclusion is $19,000 per recipient.1Internal Revenue Service. What’s New – Estate and Gift Tax You can give $19,000 to as many people as you like each year without touching your lifetime exemption or filing a gift tax return. A married couple can give $38,000 per recipient by splitting gifts. Anything above $19,000 per recipient requires filing Form 709 and counts against your lifetime exemption.

Families who made large gifts under the TCJA exemption between 2018 and 2025 had worried about a possible clawback if the exemption fell. IRS regulations finalized in 2019 let an estate calculate its tax credit using the higher of the exemption in effect when the gifts were made or the exemption at the date of death.2Internal Revenue Service. Estate and Gift Tax FAQs Because the 2026 exemption is higher than the TCJA amounts, the concern is largely moot, but the anti-clawback protection remains on the books.

Portability for a Surviving Spouse

Any portion of the $15 million exemption a spouse does not use at death can be transferred to the surviving spouse. This is the deceased spousal unused exclusion, or DSUE. If the first spouse to die used only $5 million, the survivor picks up the remaining $10 million and adds it to their own $15 million, for a combined shield of $25 million.8Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax

Portability is not automatic. The executor of the first spouse’s estate must file IRS Form 706 and affirmatively elect it, even if the estate is well below the filing threshold and owes no tax.9eCFR. 26 CFR 20.2010-2 – Portability Provisions Applicable to Estate of a Decedent Survived by a Spouse It is the step families miss most often.

If the deadline passes, there is a simplified relief path under Revenue Procedure 2022-32. Estates that were not otherwise required to file Form 706 can make a late portability election by filing the form within five years of the date of death, with no user fee and no letter ruling required.10Internal Revenue Service. Revenue Procedure 2022-32 Estates that were required to file but missed the deadline have to request a private letter ruling, which is more expensive and far less certain.

Filing Deadlines and Penalties

An estate must file Form 706 only if the gross estate, plus adjusted taxable gifts and any specific gift tax exemption used, exceeds $15 million.11Internal Revenue Service. Estate Tax Estates below the threshold do not have to file unless the executor wants to elect portability.

Form 706 is due within nine months of the date of death.12Internal Revenue Service. Instructions for Form 706 The executor can file Form 4768 for an automatic six-month extension, moving the filing deadline to fifteen months after death.13Internal Revenue Service. About Form 4768, Application for Extension of Time to File a Return and/or Pay US Estate (and Generation-Skipping Transfer) Taxes The extension applies to filing, not necessarily to payment, so interest can accrue on any unpaid balance.

Under IRC Section 6651, the failure-to-file penalty is generally 5% of the unpaid tax for each month the return is late, capped at 25%. The failure-to-pay penalty is 0.5% per month, also capped at 25%. Both run alongside interest, so a delayed filing gets expensive quickly. An estate that can show reasonable cause may qualify for penalty relief.

Generation-Skipping and State Estate Taxes

Two boundaries are worth flagging because the federal exemption alone does not cover them.

The generation-skipping transfer (GST) tax applies when wealth passes to grandchildren or other recipients more than one generation below the transferor. For 2026 the GST exemption matches the estate tax exemption at $15 million per person, is now permanent, and is indexed for inflation going forward.14Congress.gov. The Generation-Skipping Transfer Tax (GSTT) Transfers above the GST exemption face a flat 40% tax on top of any other transfer taxes.

State estate taxes are separate. Roughly a dozen states and the District of Columbia impose their own estate taxes, and several use thresholds far below the federal $15 million, with some starting at $1 million. A handful of states also impose an inheritance tax on beneficiaries rather than on the estate itself. An estate that owes nothing to the IRS can still face a substantial state bill, so residents of states with their own estate or inheritance tax should check the current state threshold.