Under current federal law, the estate tax rates and exemptions for 2026 are straightforward: each person can pass up to $15 million free of federal estate tax, and anything above that is taxed at a flat 40%.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The tax is paid by the estate itself before assets are distributed, not by the individual heirs who receive them. Because the exemption is so high, most estates owe nothing.
The 2026 Exemption Amount
The basic exclusion amount for anyone dying in 2026 is $15,000,000 per person.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 That figure was set by the One, Big, Beautiful Bill, signed into law on July 4, 2025, which amended the Internal Revenue Code to raise and permanently lock in a higher base amount.2Internal Revenue Service. What’s New – Estate and Gift Tax Starting in 2027, the $15 million figure will be adjusted annually for inflation.
If a person’s total estate is $15 million or less, the executor does not need to file a federal estate tax return (Form 706).3Internal Revenue Service. Frequently Asked Questions on Estate Taxes Going one dollar over the threshold triggers a filing obligation for the entire estate. The exemption operates as a unified credit, a dollar-for-dollar offset that cancels the tax on the first $15 million of value.4Office of the Law Revision Counsel. 26 U.S.C. 2010 – Unified Credit Against Estate Tax
How the 40% Rate Actually Applies
The Internal Revenue Code contains a graduated rate table running from 18% on the first $10,000 up to 40% on amounts above $1,000,000.5Office of the Law Revision Counsel. 26 U.S.C. 2001 – Imposition and Rate of Tax The lower brackets don’t matter in practice. Because the $15 million exemption sits far above the $1 million point where the top bracket begins, every taxable dollar above the exemption is effectively taxed at a flat 40%.
The IRS calculates a tentative tax on the full taxable estate using the graduated table, then subtracts the unified credit (the tax that would apply to $15 million). The credit wipes out the lower brackets and a large slice of the 40% bracket. What’s left is the actual bill. An estate worth $16 million, for example, owes roughly $400,000 — exactly 40% of the $1 million above the exemption.
What Counts Toward the $15 Million
The gross estate includes the value of everything the deceased owned or had an interest in at the time of death.6Office of the Law Revision Counsel. 26 U.S.C. 2033 – Property in Which the Decedent Had an Interest That covers real estate, cash and financial accounts, stocks and bonds, business interests, retirement accounts like IRAs and 401(k)s, and life insurance proceeds from policies the deceased owned or controlled.
Each asset is valued at fair market value on the date of death — the price a willing buyer would pay a willing seller.7Office of the Law Revision Counsel. 26 U.S.C. 2031 – Definition of Gross Estate If values drop in the months after death, the executor can elect an alternative valuation date six months later, which may lower the overall estate value and the tax owed.8GovInfo. 26 U.S.C. 2032 – Alternate Valuation
Property held jointly between spouses is included in the deceased spouse’s gross estate at 50% of its value.9Office of the Law Revision Counsel. 26 U.S.C. 2040 – Joint Interests For property held jointly with someone other than a spouse, the default rule includes the full value in the deceased owner’s estate unless the surviving co-owner can prove they contributed to the purchase price.
Deductions That Reduce the Taxable Estate
The taxable estate is not simply the gross estate. Several categories of deductions come off the top:
- Unpaid mortgages, credit card balances, medical bills, and other legitimate debts of the deceased.10eCFR. 26 CFR 20.2053-1 – Deductions for Expenses, Indebtedness, and Taxes
- Funeral expenses, including burial or cremation, a tombstone or monument, a burial plot, and transporting the body, if actually paid by the estate.11eCFR. 26 CFR 20.2053-2 – Deduction for Funeral Expenses
- Administration expenses such as attorney fees, executor commissions, and appraisal costs.
- Charitable gifts to qualifying organizations, with no percentage cap.12Office of the Law Revision Counsel. 26 U.S.C. 2055 – Transfers for Public, Charitable, and Religious Uses
Deductions generally reflect what the estate actually pays. A contested or contingent claim is not deductible until the amount can be determined with reasonable certainty, and claims covered by insurance or otherwise reimbursed cannot be deducted.10eCFR. 26 CFR 20.2053-1 – Deductions for Expenses, Indebtedness, and Taxes
The Marital Deduction and Portability
Property passing to a surviving spouse qualifies for an unlimited marital deduction, which removes that property entirely from the taxable estate.13Office of the Law Revision Counsel. 26 U.S.C. 2056 – Bequests, Etc., to Surviving Spouse A person can leave everything to their spouse with zero federal estate tax. The tax is deferred, not eliminated: the surviving spouse’s own estate will eventually face a calculation.
Portability lets a surviving spouse inherit whatever portion of the deceased spouse’s $15 million exemption went unused.3Internal Revenue Service. Frequently Asked Questions on Estate Taxes If the first spouse’s taxable estate was $5 million, the remaining $10 million transfers to the survivor. Combined with the survivor’s own $15 million, a married couple can shield up to $30 million from federal estate tax under 2026 figures.
To claim portability, the executor of the first spouse’s estate must file Form 706 and make a portability election, even if the estate owes no tax. Missing that step means the unused exemption is lost. A simplified method under Revenue Procedure 2022-32 lets executors make the election up to five years after the date of death, with no user fee.3Internal Revenue Service. Frequently Asked Questions on Estate Taxes After five years the unused exemption generally cannot be recaptured.
How Lifetime Gifts Affect the Exemption
Federal gift tax and estate tax share a single unified credit. Taxable gifts made during life reduce the exemption available to the estate at death.14Internal Revenue Service. Estate and Gift Tax FAQs Using $5 million of the exemption on lifetime gifts leaves the estate with $10 million remaining.
The annual gift tax exclusion, $19,000 per recipient for 2026, sits outside the unified credit entirely.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 You can give that amount each year to as many people as you like without using any lifetime exemption. Married couples can combine their exclusions for $38,000 per recipient annually. Only gifts above the annual exclusion count against the $15 million.
Filing Deadlines and Penalties
When a filing obligation exists, Form 706 and any tax payment are both due within nine months of the date of death.15Internal Revenue Service. Instructions for Form 706 An automatic six-month filing extension is available by filing Form 4768 before the original deadline, and no explanation is required.16Internal Revenue Service. Instructions for Form 4768 The extension covers the return; the tax itself is still due at nine months unless a separate payment extension is granted.
Penalties add up quickly. Late filing runs at 5% of the unpaid tax for each month or partial month, capped at 25%.17Office of the Law Revision Counsel. 26 U.S.C. 6651 – Failure to File Tax Return or to Pay Tax Late payment runs at 0.5% per month, also capped at 25%. Both can run at the same time. Reasonable cause can support a waiver.
Other Federal and State Taxes to Watch
A few situations sit outside the ordinary federal estate tax calculation and are worth flagging so the $15 million number isn’t read too broadly.
The generation-skipping transfer (GST) tax is a separate federal tax on transfers to someone two or more generations below the donor, typically a grandchild. The 2026 GST exemption matches the estate tax exemption at $15 million per person, and the rate on transfers above it is 40%.2Internal Revenue Service. What’s New – Estate and Gift Tax
Non-U.S. citizens who are not U.S. residents face a much lower threshold. An estate tax return (Form 706-NA) is required when U.S.-situated assets exceed just $60,000 in fair market value.18Internal Revenue Service. Some Nonresidents With U.S. Assets Must File Estate Tax Returns Tax treaties with certain countries may provide additional relief.
State law is a separate track. Roughly a dozen states and the District of Columbia impose their own estate taxes, often with exemption thresholds well below the federal level, some as low as $1 million. Top marginal state estate tax rates range from about 12% to 20%, with one state reaching 35%. A handful of states impose an inheritance tax instead of, or in addition to, an estate tax. The difference is who pays: an estate tax comes out of the estate before distribution; an inheritance tax is owed by each beneficiary who receives property, often at rates that depend on their relationship to the deceased. Executors and beneficiaries in those states need to check local rules separately from the federal return.