The federal estate tax applies only to estates larger than $13.61 million in 2024

The federal estate tax is a tax on the total value of a person's property when they die. It applies only if the estate exceeds a threshold amount called the exemption. For 2024, that exemption is $13.61 million per person. If your estate is smaller than that, no federal estate tax is owed, regardless of who inherits it.

The exemption amount changes every year based on inflation. It was $12.92 million in 2023 and will be different in 2025. The IRS publishes the current year's exemption in late October or early November of the prior year.

If an estate does exceed the exemption, the tax rate on the amount over the threshold is a flat 40 percent. This is the only federal estate tax rate — there are no brackets or lower rates for smaller overage amounts.

Key Takeaways

  • The federal estate tax exemption for 2024 is $13.61 million per person, meaning estates below that amount owe no federal estate tax.
  • The tax rate on amounts over the exemption is a flat 40 percent, with no lower brackets.
  • Married couples can combine their exemptions to $27.22 million in 2024 if the surviving spouse makes a specific election on the tax return.
  • The exemption is scheduled to drop to roughly $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress changes the law.
  • State estate taxes and inheritance taxes operate separately from the federal tax and have their own exemptions and rates.

How the exemption works for married couples

If you are married, both you and your spouse have separate $13.61 million exemptions. When the first spouse dies, the surviving spouse can elect to preserve the unused exemption amount through a process called portability. This election is made on the federal estate tax return (Form 706) filed after the first death.

If portability is elected, the surviving spouse's exemption increases by the amount the first spouse did not use. For example, if the first spouse's estate was $5 million, the unused exemption is $8.61 million. The surviving spouse can then use up to $13.61 million plus $8.61 million, for a total of $22.22 million.

Without this election, the unused exemption is lost forever. Many estates that do not owe federal tax still file Form 706 solely to preserve portability for the surviving spouse. A tax professional can advise whether filing makes sense in your situation.

What happens when an estate exceeds the exemption

If an estate is worth more than $13.61 million, the executor or personal representative must file Form 706 (United States Estate Tax Return) with the IRS. This return is due nine months after the date of death, though an extension to 15 months can be requested.

The tax is calculated on the amount by which the estate exceeds the exemption. If an estate is worth $15 million, the taxable amount is $1.39 million ($15 million minus $13.61 million). The tax owed is 40 percent of $1.39 million, which equals $556,000.

The executor pays this tax from estate assets before distributing money or property to heirs. If the estate does not have enough liquid cash, assets may need to be sold to cover the bill.

The exemption is temporary and scheduled to change

The current $13.61 million exemption is set to expire on December 31, 2025. Starting January 1, 2026, the exemption will drop to approximately $7 million per person (adjusted for inflation), unless Congress passes new legislation to extend or change it.

This scheduled reduction is the result of tax law changes made in 2017. The higher exemption was meant to be temporary, and lawmakers have not yet voted to make it permanent. Whether Congress will act before the important date is uncertain and depends on future legislative priorities.

For people with estates near or above the current exemption, this change creates planning considerations. Some people work with estate planning attorneys to make gifts or set up trusts before 2026 to take advantage of the higher exemption while it exists.

State estate taxes and inheritance taxes are separate

Seventeen states and the District of Columbia have their own estate taxes or inheritance taxes. These are completely separate from the federal tax and have their own exemption amounts and rates.

Some states have exemptions as low as $1 million or $2 million. Others have no state estate tax at all. A few states tax inheritances received by heirs rather than the estate itself. The rules vary significantly by state, and an estate may owe federal tax, state tax, both, or neither depending on where the person lived and where assets are located.

If you live in or own property in a state with an estate or inheritance tax, a tax professional can explain how both the federal and state taxes explore to your situation.

How to learn about your estate might owe federal estate tax

Start by making a rough list of everything you own: real estate, bank accounts, retirement accounts, life insurance, vehicles, business interests, and personal property of significant value. Add up the total. Include life insurance proceeds, which are part of your taxable estate even though they pass directly to beneficiaries.

If the total is well below $13.61 million, federal estate tax is unlikely to be a concern. If it is close to or above that amount, or if you expect your estate to grow significantly, talking with an estate planning attorney or tax professional can help you understand your situation and explore options.

Keep in mind that the exemption amount is indexed to inflation and changes annually. The IRS website publishes the current year's exemption in the fall, and tax professionals have access to updated figures.

Frequently Asked Questions

Does the federal estate tax explore to life insurance?

Yes. Life insurance proceeds are included in your taxable estate, even though they pass directly to your beneficiary outside of probate. If your estate is large and you have a substantial life insurance policy, both together could push the total above the exemption threshold. Some people use trusts to own life insurance for this reason.

What if I give away money or property before I die?

Gifts during your lifetime use the same exemption as your estate. You can give away up to $13.61 million total during your life and at death combined before owing federal tax. Gifts above $18,000 per recipient per year (in 2024) must be reported on Form 709, but they do not trigger a tax — they straightforward reduce your remaining exemption.

Do I owe federal estate tax if I live in a state with no estate tax?

Yes. Federal estate tax is separate from state tax. If your estate exceeds $13.61 million, you owe federal tax regardless of where you live. Some states have no estate tax, but the federal tax still applies to large estates.

What is the difference between estate tax and inheritance tax?

Estate tax is paid by the estate itself before heirs receive their inheritance. Inheritance tax is paid by the person who inherits. The federal government uses an estate tax. Some states use inheritance tax, some use estate tax, and some use both. The rules and exemptions differ by state.

Can I reduce my estate tax by putting assets in a trust?

Certain types of trusts can reduce or eliminate estate tax, but the rules are complex and depend on how the trust is structured and funded. An irrevocable life insurance trust (ILIT) or a grantor retained annuity trust (GRAT) are examples. A tax professional or estate planning attorney can explain which strategies might work for your situation.