Federal estate tax applies only to estates above a threshold that changes yearly
Federal estate tax is a tax on the total value of what you leave behind when you die. It only applies if your estate — the money, property, and possessions you own — exceeds a certain dollar amount. That threshold changes every year based on inflation. For 2024, the federal estate tax threshold is $13.61 million for an individual. If your estate is worth less than that, no federal estate tax is owed, regardless of who inherits it.
The threshold is much lower in some states. Connecticut, Illinois, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington all have their own estate taxes with thresholds ranging from $1 million to $6.94 million, depending on the state. If you live in one of these states or own property there, your estate may owe state tax even if it is below the federal threshold.
The federal threshold will drop significantly after 2025. Unless Congress changes the law, the threshold will fall to roughly $7 million per person on January 1, 2026. This means estates that are safe from federal tax now may owe tax after that date if nothing changes.
Key Takeaways
- The federal estate tax threshold is $13.61 million per person in 2024, but it drops to approximately $7 million in 2026 unless Congress acts.
- Ten states have their own estate taxes with thresholds between $1 million and $6.94 million, so you may owe state tax even if you are below the federal threshold.
- The tax rate on estates that do owe federal tax is a flat 40 percent of the amount over the threshold.
- Married couples can combine their thresholds through portability, potentially sheltering up to $27.22 million in 2024 from federal tax.
How the 40 percent federal rate works once you cross the threshold
If your estate does exceed the threshold, the tax rate is 40 percent on the amount over the limit. This is a flat rate — it does not increase based on how much larger your estate is. The tax applies only to the excess, not to the entire estate.
For example, if your estate is worth $14.61 million in 2024 and you are a single person, the taxable amount is $1 million (the amount over the $13.61 million threshold). The federal estate tax owed would be $400,000 (40 percent of $1 million). Your heirs would receive the remaining $14.21 million.
State estate taxes work differently depending on which state you live in. Some states use a flat rate similar to the federal system; others use a graduated rate that increases as the estate value grows. Check your state's tax department website to find the specific rate and threshold for your state.
State estate tax thresholds vary widely and may affect you even if federal tax does not
The ten states with estate taxes have thresholds that are much lower than the federal level. Oregon has the lowest at $1 million. Illinois, Maryland, and Rhode Island are at $2 million. Connecticut, Massachusetts, Minnesota, New York, and Vermont range from $2.9 million to $6.94 million. Washington state has a $2.193 million threshold.
If you live in one of these states, your estate may owe tax even if it is well below the federal threshold. For instance, an estate worth $3 million in Connecticut would owe Connecticut estate tax because it exceeds Connecticut's $2.9 million threshold, even though it is far below the federal $13.61 million threshold.
Some states also tax inheritances themselves through an inheritance tax, which is different from an estate tax. The person who receives the money or property pays the tax, not the estate. Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance taxes. Maryland is the only state with both an estate tax and an inheritance tax.
Portability lets married couples double their threshold
Married couples can use a tool called portability to combine their thresholds. If the first spouse dies, the unused portion of their threshold can transfer to the surviving spouse. This means a married couple can shelter twice the individual threshold from federal tax.
In 2024, a married couple using portability can shelter $27.22 million ($13.61 million × 2) from federal estate tax. After 2025, that amount will drop to roughly $14 million per couple unless Congress changes the law.
To use portability, the executor of the first spouse's estate must file a federal estate tax return — even if the estate is below the threshold — within nine months of death (or fifteen months if an extension is filed). The return does not require payment of tax; it straightforward preserves the unused threshold for the surviving spouse. Without this filing, the unused threshold is lost.
The 2026 threshold drop and what it means for planning
The current high thresholds are temporary. They were set by the Tax Cuts and Jobs Act of 2017 and are scheduled to expire on December 31, 2025. On January 1, 2026, the threshold will return to the 2012 level, adjusted for inflation — currently projected at roughly $7 million per person, or $14 million per married couple.
This means an estate worth $10 million that owes no federal tax in 2024 could owe federal tax in 2026 if nothing changes. Some people with estates between $7 million and $13.61 million are considering strategies to lock in the current threshold before it drops, such as making large gifts now while the threshold is high.
Congress could change this law before 2026, raising, lowering, or eliminating the estate tax altogether. Because the law is uncertain, it is worth reviewing your estate plan with a tax professional or attorney if your estate is close to the current threshold or the projected 2026 threshold.
How estates are valued for tax purposes
The value of your estate includes everything you own at the time of death: real estate, bank accounts, investments, retirement accounts, life insurance proceeds, vehicles, and personal property. The value is usually determined as of the date of death, though executors can choose to value the estate as of six months after death if that results in a lower value.
Some assets are valued at fair market value — what they would sell for on the open market. Others, like closely held business interests or real estate, may be valued using special methods that can result in a lower value than market price. These special valuations are complex and require professional appraisal.
Debts, mortgages, and funeral expenses reduce the taxable estate. Life insurance proceeds are included in the estate unless the policy is owned by someone other than the deceased or is held in an irrevocable trust.
Frequently Asked Questions
Does my estate owe federal estate tax if I live in a state with no estate tax?
No, only the federal threshold matters. If your estate is below $13.61 million in 2024, you owe no federal estate tax regardless of which state you live in. However, if you own property in a state that has an estate tax, that state may tax the property even if you live elsewhere.
What happens to my threshold if I am married and my spouse dies first?
Your spouse's unused threshold can transfer to you through portability, but only if your spouse's executor files a federal estate tax return within nine months of death. If that return is not filed, the unused threshold is lost permanently and cannot be recovered later.
If I give away money now, does it count toward my estate for tax purposes?
Gifts made during your lifetime do not count toward your estate value at death. However, gifts over $18,000 per person per year (in 2024) must be reported on a gift tax return, and they reduce your lifetime gift and estate tax threshold. The threshold is shared between gifts made during life and the estate left at death.
Will the estate tax threshold really drop in 2026?
The current law is scheduled to expire on December 31, 2025, which would drop the threshold to roughly $7 million per person. Congress could change this before then, but no change has been made yet. If you have an estate near the current threshold, review your plan with a professional to understand what might happen under either scenario.