For anyone who dies in 2026, the federal estate tax exclusion amount is $15,000,000 per person. Estates below that figure owe no federal estate tax. Anything above it is taxed at rates up to 40%.1Internal Revenue Service. What’s New – Estate and Gift Tax The number is set by the year of death, not the year the estate is settled or the return is filed.
The $15,000,000 figure comes from the One, Big, Beautiful Bill, signed on July 4, 2025. It permanently rewrote the exclusion and canceled the scheduled drop back to roughly half that amount that had been set to take effect after December 31, 2025 under the Tax Cuts and Jobs Act.1Internal Revenue Service. What’s New – Estate and Gift Tax Starting in 2027, the amount adjusts annually for inflation using the Chained CPI for All Urban Consumers with 2025 as the base year, rounded to the nearest $10,000.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
How the Exclusion Actually Works
Everything above the exclusion is taxed at a flat 40%. A single person who dies in 2026 with a taxable estate of $17,000,000 shields the first $15,000,000 and owes $800,000 on the remaining $2,000,000.
Getting to the taxable estate figure starts with the gross estate, which includes everything the decedent owned at fair market value on the date of death: real estate, bank and investment accounts, retirement funds, life insurance proceeds, business interests, and personal property. Fair market value is what a willing buyer would pay a willing seller. It is not the purchase price and not the local assessed value. For anything close to the line, professional appraisals of real estate, business interests, and collectibles are effectively necessary, because the IRS challenges valuations it considers too low and the penalties for getting it wrong are steep.
Lifetime Gifts Count Against the Same Exclusion
The federal government treats lifetime gifts and transfers at death as a single pool. One unified credit covers both, and every taxable gift you make chips away at what remains for your estate.3Internal Revenue Service. Estate and Gift Tax FAQs
Not every gift counts. In 2026, you can give up to $19,000 per recipient per year without filing a gift tax return or touching your lifetime exclusion.4Internal Revenue Service. Frequently Asked Questions on Gift Taxes Amounts above that are taxable gifts, reported on Form 709, and they follow you for the rest of your life. Give one person $119,000 in 2026, and $100,000 of it reduces your remaining lifetime exclusion from $15,000,000 to $14,900,000.
When you die, the IRS adds all of your lifetime taxable gifts back into the calculation to determine whether you have crossed the exclusion. Someone who made $3,000,000 in taxable gifts over the years and dies with a $13,000,000 gross estate is treated as a $16,000,000 total, with the 40% rate applying to the $1,000,000 overage.
If Congress ever lowers the exclusion, an anti-clawback rule protects gifts made under a higher one. The estate computes its credit using the greater of the exclusion that applied when the gifts were made or the exclusion in effect at death.3Internal Revenue Service. Estate and Gift Tax FAQs
Portability Can Double the Shield for Married Couples
When the first spouse in a married couple dies without using the full exclusion, the surviving spouse can claim the leftover portion, formally the deceased spousal unused exclusion amount.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax If the first spouse used only $2,000,000, the survivor picks up the remaining $13,000,000 and adds it to their own $15,000,000, for a combined $28,000,000. If neither spouse used any exclusion during life, the survivor can ultimately shelter up to $30,000,000.
Portability is not automatic. The executor of the first spouse’s estate must elect it on a timely filed Form 706, even when the estate is nowhere near the taxable threshold.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Families that skip filing because the first estate seems small often discover the mistake decades later, when the surviving spouse’s own estate has grown past the single-person amount.
The survivor can only use the unused exclusion from the last deceased spouse. Remarriage followed by a second spouse’s death resets the portable amount to whatever that second spouse left unused. There is no way to stack exclusions from multiple marriages.
Late Portability Elections
Revenue Procedure 2022-32 offers a simplified path when the original deadline was missed. The executor can file a late Form 706 and elect portability up to five years after the decedent’s date of death, provided the estate was not otherwise required to file based on gross estate plus adjusted taxable gifts.5Internal Revenue Service. Revenue Procedure 2022-32 The decedent must have been a U.S. citizen or resident, died after December 31, 2010, and been survived by a spouse.
The executor files a complete Form 706 with the statement “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER ยง 2010(c)(5)(A)” at the top.5Internal Revenue Service. Revenue Procedure 2022-32 Estates that were required to file under the normal threshold rules cannot use this method and must seek relief through a private letter ruling.
When Form 706 Must Be Filed
The executor must file Form 706 whenever the gross estate exceeds the basic exclusion amount for the year of death.6Office of the Law Revision Counsel. 26 USC 6018 – Estate Tax Returns The filing obligation exists even when deductions for debts, charitable gifts, or the marital deduction wipe out the tax. And as noted above, a Form 706 is required whenever the executor wants to elect portability, regardless of estate size.
The return is due on the day of the ninth calendar month after death corresponding numerically to the date of death.7eCFR. 26 CFR 20.6075-1 – Returns; Time for Filing Estate Tax Return Death on March 15 means a December 15 return. Executors who need more time file Form 4768 for an automatic six-month extension. Form 4768 must be submitted on or before the original due date and must include an estimate of the estate and generation-skipping transfer tax liability. Extending the time to file does not extend the time to pay. Interest runs from the original due date, and late-payment penalties can stack on top.8eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return
Form 706 itself is a substantial document. The executor works through schedules for real estate, stocks, bonds, mortgages, insurance, jointly owned property, and other holdings, each requiring a description, fair market value, and supporting documentation. For closely held businesses, commercial real estate, or unusual assets, formal appraisals are functionally mandatory.
Penalties for Missing the Deadline or Undervaluing Assets
Missing the filing deadline without reasonable cause triggers a penalty of 5% of the unpaid tax for each month or partial month the return is late, up to 25%. The failure-to-pay penalty runs separately at 0.5% per month, also capped at 25%, and both can apply to the same return at the same time.9Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax On a seven-figure liability, the numbers move fast.
Valuation mistakes carry their own exposure. The standard accuracy-related penalty is 20% of the underpayment attributable to a substantial valuation understatement. A gross valuation misstatement doubles that to 40%.10Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments Both filing and valuation penalties can be waived if the executor demonstrates reasonable cause and no willful neglect, but the IRS does not hand out that exception generously.
The Alternate Valuation Date Election
Estate assets are normally valued as of the date of death. If asset values drop in the months after death, the executor may elect to value the estate six months after death instead.11Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation
The election is only available when it decreases both the value of the gross estate and the total estate tax liability. If either number moves the wrong way, the election cannot be used. Assets sold or distributed within the six-month window are valued as of the date they leave the estate. Once made on Form 706, the election is irrevocable. On a $5,000,000 stock portfolio, a 15% decline would remove $750,000 from the gross estate, worth $300,000 in tax at the 40% rate. The tradeoff: the lower valuation also becomes the beneficiaries’ cost basis for future capital gains.
State Estate Taxes Are Separate
The $15,000,000 federal exclusion does not protect against state-level estate taxes. Roughly a dozen states and the District of Columbia impose their own, with exemption thresholds far below the federal number, some as low as $1,000,000. An estate worth $5,000,000 may owe nothing federally and still face a substantial state bill depending on where the decedent lived. Check the rules in the state of residence; the federal return does not satisfy state filing obligations.