The federal estate tax exemption in 2026 is $15 million per individual, or $30 million for a married couple, under the One Big Beautiful Bill Act (P.L. 119-21) signed into law on July 4, 2025.1Internal Revenue Service. What’s New — Estate and Gift Tax The new figure is permanent, adjusted for inflation in future years, and carries no scheduled sunset. Any estate value above the threshold is taxed at a top federal rate of 40 percent.2Internal Revenue Service. Estate Tax
The Sunset That Didn’t Happen
The Tax Cuts and Jobs Act of 2017 temporarily doubled the estate tax exemption from a $5 million base to $10 million, with annual inflation adjustments carrying the figure to $13.99 million per person by 2025.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax That doubling was written to expire on December 31, 2025. Without new legislation, the exemption would have dropped to roughly $7 million per person in 2026, pulling thousands of additional estates into the 40 percent federal tax.
Congress replaced the old $5 million base in the statute with a new $15 million basic exclusion amount, effective January 1, 2026. That is a slight step up from the 2025 figure rather than the steep cut that had been scheduled, and it applies to both the estate tax and the lifetime gift tax exemption, which remain unified.
How Lifetime Gifts Count Against the Exemption
The $15 million covers gifts made during your lifetime and assets transferred at death as a single pool. Each dollar of reportable lifetime gifts reduces what remains to shelter your estate.
The annual gift tax exclusion for 2026 is $19,000 per recipient.4Internal Revenue Service. Gifts and Inheritances You can give up to that amount to any number of people each year without filing a gift tax return or touching your lifetime exemption. Married couples can combine and give $38,000 per recipient. Only amounts above the annual threshold require reporting on IRS Form 709 and reduce the lifetime credit.5Internal Revenue Service. About Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
The IRS tracks reportable gifts across your lifetime. At death, cumulative gifts are added back to the estate’s value and the unified credit is applied to the combined total. Someone who used all $15 million on lifetime gifts would have no exemption left at death.
Gifts Made Before 2026 Are Safe
Anyone who made large gifts during the TCJA years to lock in the higher exemption is protected. Under 26 CFR 20.2010-1(c), the IRS calculates the estate tax credit using whichever is greater: the exemption at the time of the gifts or the exemption at date of death.6eCFR. 26 CFR 20.2010-1 – Unified Credit Against Estate Tax; In General With the permanent figure now higher than any prior TCJA level, no one who gifted under the old caps is at risk of clawback.
Portability for Surviving Spouses
When one spouse dies without using their full exemption, the unused portion can transfer to the surviving spouse. This is the Deceased Spousal Unused Exclusion, or DSUE. It is not automatic. The executor of the deceased spouse’s estate must file IRS Form 706 and affirmatively elect portability, even if the estate is far too small to owe any tax.7Internal Revenue Service. Instructions for Form 706
The filing deadline is nine months after the date of death. Executors can request an automatic six-month extension by filing Form 4768.8Internal Revenue Service. Frequently Asked Questions on Estate Taxes If nobody files, the surviving spouse loses the deceased spouse’s unused exemption permanently.
Late Filing Relief
For estates that were not otherwise required to file (because the gross estate fell below the filing threshold), Revenue Procedure 2022-32 allows a portability-only Form 706 to be filed anytime within five years of the decedent’s death. The return must include a statement at the top reading “Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under Section 2010(c)(5)(A).”9Internal Revenue Service. Revenue Procedure 2022-32 The relief is only available to estates that were below the filing threshold. Estates that were required to file and missed the deadline cannot use it.
What Portability Adds Up To
A surviving spouse can stack their own $15 million exemption on top of the DSUE amount carried over from the first spouse. If the first spouse died in 2025 with $13.99 million of unused exemption, the surviving spouse could potentially shelter close to $29 million by combining the 2025 DSUE with their own 2026 exemption. The DSUE is fixed at the level established when the first spouse died and is not further adjusted for inflation, so filing promptly matters.7Internal Revenue Service. Instructions for Form 706
Generation-Skipping Transfer Tax
The generation-skipping transfer tax applies to wealth passed directly to grandchildren or others two or more generations below the donor. Its rate is also 40 percent and sits on top of any gift or estate tax already owed. The GST exemption matches the estate tax exemption at $15 million per person for 2026, likewise made permanent by the One Big Beautiful Bill Act.10Congress.gov. The Generation-Skipping Transfer Tax (GSTT)
GST exemption is allocated to transfers either automatically or by election on Form 709. For direct gifts to grandchildren, unused GST exemption is automatically applied up to the value of the transfer. For transfers into trusts that might eventually benefit grandchildren, automatic allocation also applies unless you opt out on a timely filed Form 709.11eCFR. 26 CFR 26.2632-1 – Allocation of GST Exemption Once the filing deadline passes, allocations become irrevocable. A misallocation can cause a trust intended to be GST-exempt to become fully taxable at 40 percent when distributions occur decades later.
Step-Up in Basis Versus Lifetime Gifts
Assets transferred at death receive a step-up in basis. The heir’s cost basis for capital gains resets to fair market value on the date of death.12Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent Stock a parent bought for $50,000 that is worth $500,000 at death has a $500,000 basis in the heir’s hands. Selling it the next day generates no capital gains tax. The new law kept this rule in place.p>
Gifted property is different. When you receive property as a lifetime gift, you inherit the donor’s original cost basis. That same stock, gifted while the parent was alive, would carry a $50,000 basis and produce a $450,000 taxable gain on sale. For highly appreciated assets, the step-up at death can save more in capital gains taxes than the estate tax would have cost, especially with the exemption at $15 million.
One anti-abuse rule: if appreciated property is gifted to someone who dies within a year, and the property passes back to the original donor or their spouse, the step-up does not apply.12Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
State Estate and Inheritance Taxes Still Apply
The federal exemption is only part of the picture. Roughly a dozen states and the District of Columbia impose their own estate or inheritance taxes, with exemption thresholds generally ranging from around $1 million to $7 million. An estate well below the federal $15 million can still face a state tax bill of several percent up to over 15 percent.
Some states impose inheritance taxes paid by the person receiving the assets rather than by the estate. Rates often depend on the heir’s relationship to the deceased, with distant relatives and unrelated beneficiaries paying more. Anyone with assets above roughly $1 million should confirm whether their state of residence taxes transfers, regardless of comfort under the federal exemption.
What This Means for Planning
The permanent $15 million exemption removes the urgency that shaped estate planning from 2023 through early 2025. There is no year-end deadline to rush gifts against. But higher limits do not eliminate planning. Estates above $15 million still owe 40 percent at the federal level, and that threshold, while indexed for inflation, can be overtaken by assets that appreciate faster than the index.
Portability elections, GST allocations, and the choice between gifting now or letting property pass with a stepped-up basis remain decisions with real tax consequences. What has changed is the clock. Those choices can now be made on the family’s timetable rather than Congress’s.