Estate Tax History: 1916 Origins, Unification, and TCJA Changes

The history of the federal estate tax runs from a 1797 stamp duty on wills through three wartime experiments, a permanent tax enacted in 1916, decades of top rates as high as 77%, a one-year repeal in 2010, and a modern framework that as of 2026 exempts the first $15 million per person and taxes the rest at a top rate of 40%.¹

Wartime Origins: 1797 to 1902

For the first century of the country’s existence, Congress used death taxes only as emergency revenue. Each version arrived with a war and left with the peace.

The Stamp Act of 1797 introduced the first federal death tax to fund a naval buildup during an undeclared conflict with France. It required federal stamps on wills offered for probate and on receipts for legacies and estate distributions, functioning more like a probate fee than a modern estate tax. Congress repealed it in 1802.²

The Civil War brought the concept back. The Revenue Act of 1862 imposed an inheritance tax with rates that varied based on the beneficiary’s relationship to the deceased, with lower rates for close family. Congress repealed these taxes by the early 1870s.³

The War Revenue Act of 1898, passed to fund the Spanish-American War, was more sophisticated. Estates under $10,000 were exempt. Close relatives paid graduated rates from 0.75% on legacies between $10,000 and $25,000 up to 2.25% on amounts above $1 million, while unrelated beneficiaries could face rates as high as 15%.⁴ The Supreme Court upheld the tax in Knowlton v. Moore (1900), ruling that it was an excise tax on the privilege of transferring wealth rather than a direct tax on property.⁵ Congress repealed the tax in 1902 once war debts stabilized.⁶

The 1916 Permanent Estate Tax

The Revenue Act of 1916 ended the enact-and-repeal cycle. Passed during the Progressive Era, when concerns about concentrated wealth dominated political debate, the law created the first permanent federal estate tax. Instead of taxing what each beneficiary received, it taxed the whole estate as a single unit before distribution. The first $50,000 was exempt, and graduated rates ran from 1% to 10%.⁴

Wealthy families responded by giving property away during their lifetimes. Congress closed that gap with the Revenue Act of 1924, which imposed the first federal gift tax on lifetime transfers. That tax was briefly repealed in 1926 and then permanently restored in 1932.⁷ From that point on, the government could reach transfers whether they occurred during life or at death.

Top Rates Climb to 77%

Over the next several decades, rates rose sharply. By 1942, the top marginal estate tax rate reached 77%, and it stayed there until 1976.⁴ The high rate reflected a political consensus that large inherited fortunes should be taxed aggressively, though actual burdens depended on the exemption level and the planning tools available at any given time.

The 1976 Unification of Estate and Gift Taxes

Before 1976, the estate tax and the gift tax ran on entirely separate rate tables and exemptions. A wealthy person could use one set of low brackets for lifetime gifts and a different set for the estate at death, effectively doubling the tax-free transfer capacity.

The Tax Reform Act of 1976 merged the two into a single system. A single graduated rate table now applied to the cumulative total of all transfers, whether during life or at death. The old exemption was replaced with a unified credit of $29,800 that could offset tax on either lifetime gifts or the estate. Credit used during life reduced what remained at death, so every taxable gift now had a direct, traceable effect on the final estate tax calculation.⁸

The same law introduced the generation-skipping transfer tax. Families had been passing assets directly to grandchildren or great-grandchildren to avoid a layer of estate tax at the intermediate generation, and the original GST tax targeted the multigenerational trusts used to achieve that result.⁹ Congress overhauled the GST tax in 1986, but the 1976 version established the principle that wealth transfers should be taxed at each generational level.

The 2001–2012 Roller Coaster

The Economic Growth and Tax Relief Reconciliation Act of 2001 set the estate tax on a phased reduction. The exemption climbed from $675,000 in 2001 to $3.5 million by 2009, and the top rate fell from 55% to 45% over the same period.¹⁰

Then came 2010. EGTRRA’s sunset provision caused the estate tax to disappear entirely for that single year. Estates of any size could pass to heirs with no federal estate tax owed. Under the same law, the tax was scheduled to snap back in 2011 to a $1 million exemption and a 55% top rate, meaning that dying in December 2010 could save a family millions compared with dying in January 2011.¹⁰

Congress intervened with the American Taxpayer Relief Act of 2012. ATRA set a permanent base exemption of $5 million per person, indexed for inflation beginning in 2011, and a top rate of 40%. It also introduced portability, letting a surviving spouse claim any portion of a deceased spouse’s unused exemption. Portability eliminated the need for certain trust structures that married couples had used for decades to avoid wasting the first spouse’s exemption.¹¹

The TCJA Doubling and the 2025 Law

The Tax Cuts and Jobs Act of 2017 doubled the base exemption, raising it from $5 million to roughly $11.18 million per person for 2018. With inflation adjustments, the exemption grew to $13.99 million by 2025.¹ The increase was originally set to expire after 2025, which would have cut the exemption roughly in half.

That sunset never took effect. On July 4, 2025, the One, Big, Beautiful Bill (Public Law 119-21) was signed into law, amending the basic exclusion amount to $15 million per individual for 2026 and indexing that amount for inflation in future years using 2025 as the base year.¹ Married couples who both use their full exemptions can pass $30 million free of federal estate tax.¹²

Where the Estate Tax Stands in 2026

The federal exemption for 2026 is $15 million per person, and the top rate is 40%.¹ Only a small fraction of estates owe any federal estate tax at that threshold. Portability continues to allow a surviving spouse to inherit an unused exemption from a deceased spouse.¹¹

The IRS also maintains an anti-clawback rule for gifts made in years when the exemption was temporarily higher. An estate can compute its credit using the greater of the exemption in effect when a gift was made or the exemption in effect at death, so taxpayers who used the larger TCJA-era exemption before it was extended are not penalized if the amount ever falls.¹³

Federal law is only part of the picture. Roughly a dozen states and the District of Columbia impose their own estate taxes, and several states levy a separate inheritance tax keyed to the beneficiary’s relationship to the deceased. State exemption thresholds range from about $1 million to roughly $13.6 million, all well below the federal level, so an estate that owes nothing federally can still face a significant state bill.

1
Internal Revenue Service. What’s New: Estate and Gift Tax
2
Internal Revenue Service. Federal Taxation of Inheritance and Wealth Transfers
3
Internal Revenue Service. Historical Highlights of the IRS
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Internal Revenue Service. The Estate Tax: Ninety Years and Counting
5
Justia US Supreme Court. Knowlton v. Moore, 178 U.S. 41 (1900)
6
Congressional Research Service. A History of Federal Estate, Gift, and Generation-Skipping Taxes
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U.S. Department of the Treasury. The Federal Gift Tax: History, Law, and Economics
8
Congress.gov. H.R.14116 – 94th Congress: Estate and Gift Tax Reform Act
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Congress.gov. The Generation-Skipping Transfer Tax (GSTT)
10
Internal Revenue Service. Recent Changes in the Estate Tax Exemption Level and Filing Population
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Tax Policy Center. What Did the American Taxpayer Relief Act of 2012 Do?
12
Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
13
Internal Revenue Service. Estate and Gift Tax FAQs