The Tax Cuts and Jobs Act doubled the federal estate tax exemption starting in 2018, lifting the base from $5 million to $10 million per person before inflation adjustments. That increase was temporary and would have reverted on January 1, 2026, but the One Big Beautiful Bill Act, signed on July 4, 2025, made the higher exemption permanent and set it at $15 million per individual for deaths in 2026, with inflation adjustments resuming in 2027.1Internal Revenue Service. What’s New — Estate and Gift Tax2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
What the TCJA Did to the Exemption
Before 2018, the base federal estate tax exemption was $5 million per person, adjusted annually for inflation. The TCJA doubled that base to $10 million, which translated to $11.18 million in 2018 after the inflation adjustment.3Internal Revenue Service. Estate and Gift Tax FAQs The IRS bumped the number higher each year. By 2025, the inflation-adjusted exemption had reached $13.99 million per individual.
The doubling came with a sunset. Under the original 2017 legislation, the exemption would revert to its pre-2018 base of $5 million (adjusted for inflation) on January 1, 2026, cutting the shield roughly in half and pulling many more estates back into taxable territory.3Internal Revenue Service. Estate and Gift Tax FAQs Congress blocked that reversion in 2025. The One Big Beautiful Bill Act permanently set the basic exclusion amount at $15 million and directed the IRS to begin inflation adjustments starting in 2027.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
The Exemption for 2026 and Beyond
For anyone dying in 2026, the basic exclusion amount is $15 million.4Internal Revenue Service. Estate Tax A married couple can protect up to $30 million by combining both spouses’ exemptions, which requires an affirmative election described below. Starting in 2027, the IRS will adjust the $15 million figure for inflation, so the number will climb in future years as it did under the TCJA.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
An estate that falls below $15 million in total value generally owes no federal estate tax and typically does not need to file a return for tax payment purposes. Executors determine whether the threshold is exceeded by calculating the fair market value, at the date of death, of everything the deceased owned: real estate, bank accounts, investment portfolios, retirement accounts, business interests, and life insurance proceeds payable to the estate or owned by the deceased. Valuations matter, because the IRS can challenge appraisals it considers too low.
If the estate does exceed the filing threshold, the executor must file Form 706 within nine months of the date of death.5Internal Revenue Service. Instructions for Form 706 An automatic six-month extension is available by filing Form 4768, pushing the deadline to fifteen months after death.6Internal Revenue Service. About Form 4768, Application for Extension of Time To File a Return and/or Pay US Estate (and Generation-Skipping Transfer) Taxes The extension applies to the filing deadline. Interest still accrues on unpaid tax from the original nine-month due date.
Lifetime Gifts Count Against the Same Number
The federal tax code treats gifts made during your lifetime and transfers at death as part of the same system. The $15 million exemption is a lifetime number: every dollar you give away above the annual gift exclusion during life reduces what’s left to shelter your estate at death.
The annual gift tax exclusion for 2026 is $19,000 per recipient.1Internal Revenue Service. What’s New — Estate and Gift Tax You can give $19,000 to as many people as you want each year without filing paperwork or touching your lifetime exemption. Married couples can combine their annual exclusions and give up to $38,000 per recipient per year.
When a gift to one person exceeds $19,000 in a calendar year, the donor must file Form 709 and report the excess.7Internal Revenue Service. Instructions for Form 709 (2025) The overage comes off the donor’s remaining lifetime exemption. No tax is actually due until lifetime gifts above the annual exclusion plus the estate at death exceed $15 million. The IRS tracks these cumulative transfers, so careful records throughout your life prevent surprises for your executor later.
Doubling the Exemption Through Portability
Portability lets a surviving spouse inherit the deceased spouse’s unused exemption, giving the couple a combined shield of up to $30 million. The transfer of what the IRS calls the “deceased spousal unused exclusion” (DSUE) does not happen automatically. The executor of the first spouse’s estate must affirmatively elect portability by filing Form 706, even when the estate is too small to otherwise require one.5Internal Revenue Service. Instructions for Form 706
The return is due within nine months of the first spouse’s death.8Internal Revenue Service. Frequently Asked Questions on Estate Taxes Missing that deadline can mean losing millions of dollars in protection for the surviving spouse. This is the single most common estate planning mistake for married couples: assuming the exemption carries over by default when it does not.
Late Portability Election Relief
If the executor missed the nine-month window, there may still be a path. Under Revenue Procedure 2022-32, an estate that was not otherwise required to file a return can make a late portability election up to five years after the date of death.9Internal Revenue Service. Revenue Procedure 2022-32 The executor must file a complete Form 706 within that window and include a statement at the top of the return indicating the filing is made pursuant to Revenue Procedure 2022-32. This simplified relief only applies when the estate’s gross value fell below the filing threshold. If the estate actually owed tax, the relief is void from the start.
Beyond five years with no return filed, the surviving spouse would need to request a private letter ruling from the IRS, which is expensive and uncertain. The practical point: file Form 706 for portability within the deadlines. Preparing the return costs little compared to losing a $15 million exemption.
The Unlimited Marital Deduction
Separate from portability, federal law allows an unlimited deduction for property passing from the deceased to a surviving spouse who is a U.S. citizen.10Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse A $100 million estate left entirely to a citizen spouse owes zero federal estate tax at the first death, regardless of the exemption. The tax is deferred rather than eliminated; whatever the surviving spouse still holds at the second death counts in their own taxable estate.
If the surviving spouse is not a U.S. citizen, the marital deduction is generally disallowed.10Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse A qualified domestic trust (QDOT) is the usual workaround, holding the assets and deferring the tax until the trustee distributes principal. For families with a non-citizen spouse, getting this wrong can trigger an immediate multi-million-dollar tax bill that proper planning would have avoided.
Rates and Deductions Above the Exemption
Once an estate exceeds $15 million after deductions, the excess is taxed on a graduated scale starting at 18% and topping out at 40% on amounts more than $1 million above the exemption.11Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Because the graduated brackets below 40% cover only the first $1 million of taxable value, any estate meaningfully above the exemption pays close to a flat 40% on the overage.
Several deductions reduce the gross estate before the rate applies:
- Marital deduction for property passing to a U.S. citizen spouse, with no dollar limit.
- Charitable deduction for bequests to qualifying charities, religious organizations, and certain government entities.12Office of the Law Revision Counsel. 26 US Code 2055 – Transfers for Public, Charitable, and Religious Uses
- Debts and expenses, including mortgages, outstanding loans, funeral costs, and administrative expenses of settling the estate.
The estate tax bill is generally due nine months after death, the same deadline as the Form 706 filing.
Step-Up in Basis for Inherited Property
One of the most valuable features of the estate tax regime has nothing to do with whether the estate owes tax. When you inherit property, your cost basis for capital gains purposes resets to the fair market value at the date of death rather than what the deceased originally paid.13Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent
Say your parent bought stock for $50,000 decades ago and it’s worth $500,000 when they die. You inherit it with a $500,000 basis. If you sell it the next day for $500,000, you owe zero capital gains tax. Without the step-up, you’d owe tax on the $450,000 gain. The benefit applies to all inherited assets, not just those in taxable estates. Even if the estate owes no estate tax because it falls under the $15 million exemption, heirs still receive the stepped-up basis.
State Estate and Inheritance Taxes
Federal exemptions tell only part of the story. About a dozen states and the District of Columbia impose their own estate taxes, and a handful of states levy inheritance taxes (which are paid by the heir rather than the estate). One state imposes both. State thresholds are dramatically lower than the federal number, running from roughly $1 million to $7 million depending on the state. An estate worth $5 million might owe nothing federally and still face a six-figure state bill. If you live in or own property in a state with its own estate or inheritance tax, planning around the federal exemption alone will leave gaps.