For deaths in 2026, an individual can pass up to $15 million to heirs completely free of federal estate tax, and a married couple can shield up to $30 million by combining both spouses’ exemptions. Below those thresholds, heirs owe nothing to the IRS on what they receive. How much inheritance is tax free at the state level is a different question: about a dozen states impose their own estate taxes with exemptions starting as low as $1 million, and five states charge a separate inheritance tax paid directly by the person receiving the assets.
The $15 Million Federal Exemption
The federal estate tax applies to the total value of everything a person owns at death, including real estate, investments, bank accounts, and business interests. For 2026, the basic exclusion amount is $15 million per person.1Internal Revenue Service. What’s New – Estate and Gift Tax That figure rose from $13.99 million in 2025 after Congress passed the One Big Beautiful Bill Act, which permanently raised the exemption and eliminated the expiration date that had been looming under prior law.2Internal Revenue Service. Estate Tax Starting in 2027, the $15 million amount adjusts upward each year for inflation.
If a person’s gross estate falls below $15 million, the executor generally does not need to file a federal estate tax return at all. When an estate does exceed the exemption, a unified credit wipes out tax on the first $15 million, and only the excess is taxed. Rates on that excess start at 18 percent on the first $10,000 above the exemption and climb through a series of brackets until they hit 40 percent on amounts more than $1 million above the exemption.2Internal Revenue Service. Estate Tax
One point that trips people up: the estate pays this bill before anything is distributed. Beneficiaries don’t write a check to the IRS out of their own pocket. If you inherit $500,000 from an estate worth $2 million, federal estate tax simply doesn’t enter the picture.
How Married Couples Reach $30 Million
Two features of federal law let spouses combine their exemptions. First, transfers between spouses are covered by an unlimited marital deduction. A person can leave any amount to a surviving spouse with zero federal estate tax, whether the estate is worth $500,000 or $500 million.3Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse The tax is postponed until the surviving spouse dies.
Second, whatever exemption the first spouse to die didn’t use can transfer to the survivor through a mechanism called portability.4Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax If the first spouse used $4 million of exemption, the remaining $11 million shifts to the survivor, giving them up to $26 million of combined protection at their own death.
Portability isn’t automatic. The executor of the first spouse’s estate must file a federal estate tax return (Form 706) even when no tax is owed, generally within nine months of death, with a six-month extension available.5Internal Revenue Service. Instructions for Form 706 Skipping that return can permanently cost the surviving spouse millions in tax-free transfer capacity.
A boundary worth flagging: the unlimited marital deduction requires that the surviving spouse be a U.S. citizen. A non-citizen spouse doesn’t automatically get it, even with a green card. The workaround is a Qualified Domestic Trust, which restricts principal distributions so the IRS can still collect estate tax later.6Office of the Law Revision Counsel. 26 U.S. Code 2056A – Qualified Domestic Trust If the non-citizen spouse naturalizes before the estate tax return is due, the marital deduction applies retroactively.3Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse
State Taxes Can Lower the Tax-Free Amount
Clearing the federal threshold doesn’t mean clearing the state one. Twelve states and the District of Columbia impose their own estate taxes, and their exemptions are far below $15 million. The lowest state exemptions start around $1 million, so a $3 million estate that owes nothing federally could still trigger a state bill. State estate tax rates generally range from less than 1 percent to 16 percent, with a couple of states pushing top rates as high as 20 percent or even 35 percent on very large estates.
Five states take a different route with an inheritance tax, paid by the person receiving the assets rather than by the estate. Rates depend on the heir’s relationship to the deceased:
- A surviving spouse is almost always fully exempt.
- Children and grandchildren typically owe nothing or pay a very low rate.
- Siblings, nieces, and nephews face moderate rates.
- Friends and unrelated beneficiaries pay the highest rates, reaching 15 to 18 percent depending on the state and the amount received.
One state imposes both an estate tax and an inheritance tax, so the same transfer can be taxed twice at the state level. Because the rules vary so much, the tax-free amount for any particular inheritance depends heavily on where the deceased lived or owned property. An heir in a state with no estate or inheritance tax may receive the full amount free and clear; an identical inheritance elsewhere could face a real bill.
Whether You Owe Income Tax on What You Inherit
Estate tax is only half the picture. The type of asset you inherit determines whether you owe income tax on it, regardless of the estate’s size.
Stepped-Up Basis on Appreciated Property
Most inherited property receives a stepped-up basis. The asset’s tax value resets to its fair market value on the date the owner died, erasing the appreciation that built up during their lifetime.7Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Inherit a house worth $400,000 that was originally purchased for $60,000, sell it the next day for $400,000, and you owe zero capital gains tax. The rule applies to stocks, real estate, and most other appreciated assets. Capital gains tax kicks in only on appreciation that happens after the date of death.
Traditional IRAs and 401(k) Plans
Retirement accounts are the big exception. Because the original owner never paid income tax on contributions to a traditional IRA or 401(k), that tax bill passes to whoever inherits the account. Distributions come out as ordinary income at the beneficiary’s own rate, anywhere from 10 to 37 percent.7Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
Most non-spouse beneficiaries who inherited an account after 2019 must empty it by the end of the tenth year following the owner’s death.8Internal Revenue Service. Retirement Topics – Beneficiary Some beneficiaries also need to take annual required minimum distributions within that ten-year window, depending on whether the original owner had already started their own distributions. Missing a required withdrawal triggers a 25 percent penalty on the amount that should have been taken, dropping to 10 percent if you correct it within two years. A narrow group of eligible designated beneficiaries, including surviving spouses, minor children, disabled individuals, and people close in age to the deceased, can still stretch distributions over their own life expectancy.
Life Insurance Proceeds
Life insurance payouts are generally received income-tax-free by the beneficiary.9Internal Revenue Service. Life Insurance and Disability Insurance Proceeds A $1 million policy pays out $1 million in cash with no federal income tax. The proceeds can still be counted in the deceased’s gross estate for estate tax purposes if they owned the policy at death, but that matters only when the total estate exceeds the $15 million exemption.
Lifetime Gifts Shrink the Exemption
The federal government treats the estate tax and the gift tax as one system. Every dollar of taxable gifts made during a person’s lifetime chips away at the same $15 million exclusion that would otherwise shelter the estate at death.10Internal Revenue Service. Estate and Gift Tax FAQs Give away $6 million during life and die in 2026, and only $9 million of exemption remains to cover the estate.
The annual gift tax exclusion softens this a lot. In 2026, you can give up to $19,000 per recipient per year without touching the lifetime exemption.11Internal Revenue Service. Frequently Asked Questions on Gift Taxes A married couple can give $38,000 per recipient through gift-splitting. Gifts within the annual limit don’t require a gift tax return and don’t reduce the $15 million exclusion. Only amounts above $19,000 per recipient count as taxable gifts that eat into the lifetime figure. The IRS confirmed in 2019 regulations that anyone who used the higher exemption while it was in effect will not face a clawback if the exemption ever decreases in the future.10Internal Revenue Service. Estate and Gift Tax FAQs