The federal estate tax rate is 40 percent, but it only applies to estates larger than a threshold amount
The federal estate tax is a tax on the total value of a person's property when they die. The tax rate is a flat 40 percent, but you only owe it if your estate exceeds a certain dollar amount. That threshold changes every year based on inflation.
For 2024, the threshold is $13.61 million per person. This means if your estate is worth $13.61 million or less, no federal estate tax is owed. If it exceeds that amount, the 40 percent tax applies only to the value above the threshold, not to the entire estate.
The threshold is scheduled to drop significantly at the end of 2025. Unless Congress changes the law, it will fall to approximately $7 million per person in 2026. This change affects very few households, but it is worth knowing if your estate is close to that range.
Key Takeaways
- The federal estate tax rate is 40 percent, but only on the portion of an estate that exceeds the annual threshold.
- For 2024, estates under $13.61 million owe no federal estate tax; the threshold drops to around $7 million in 2026 unless Congress acts.
- Each person has their own threshold, so a married couple can shield roughly double that amount from federal estate tax.
- State estate taxes and inheritance taxes exist separately and have their own rates and thresholds, which vary by state.
- The threshold amount is adjusted each year for inflation, so the exact number changes annually.
How the 40 percent rate works on estates over the threshold
The 40 percent federal estate tax is not a tax on your entire estate if you are over the threshold. It is a tax only on the amount that exceeds it. This is called a marginal tax.
For example, if someone dies in 2024 with an estate worth $15 million, the calculation works like this: the first $13.61 million is not taxed. The remaining $1.39 million is subject to the 40 percent rate, which equals $556,000 in federal estate tax owed.
The executor of the estate—the person responsible for settling it—must file a federal estate tax return (Form 706) if the estate exceeds the threshold. This return is due nine months after the person's death, though an extension can be requested.
The threshold amount changes every year
The dollar amount that triggers federal estate tax is not fixed. It is adjusted annually for inflation by the Internal Revenue Service (IRS). This means the threshold is higher each year than it was the year before, though the increase is usually modest.
The threshold has been quite high in recent years because of a tax law that took effect in 2018. That law roughly doubled the threshold from what it had been. However, that law expires at the end of 2025, and unless Congress extends it, the threshold will drop to around $7 million per person starting in 2026.
Because the threshold changes, it is worth checking the current year's amount if you are planning an estate or if your net worth is close to the threshold. The IRS publishes the current threshold each year on its website.
Married couples can use both thresholds
A married couple can each use their own threshold. This means a married couple in 2024 can shield roughly $27.22 million from federal estate tax (double the individual threshold). This is done through a process called portability, which allows the surviving spouse to use any unused threshold from the deceased spouse's estate.
To use portability, the executor must file a federal estate tax return even if the estate does not owe tax. This preserves the unused threshold for the surviving spouse. Without this filing, the unused threshold is lost.
Portability is automatic in some cases, but it is safer to file the return to make sure it is claimed. An estate planning attorney can advise whether filing makes sense in your situation.
State estate taxes and inheritance taxes are separate
Federal estate tax is only one layer. Some states also tax estates or inheritances, and those taxes have their own rates and thresholds. State estate tax rates typically range from 3.6 percent to 16 percent, depending on the state, and state thresholds are often much lower than the federal threshold.
For example, Massachusetts has a state estate tax with a threshold of $1 million and a top rate of 16 percent. New York has a threshold of $6.94 million and a top rate of 3.06 percent. Other states have no estate tax or inheritance tax at all.
If someone dies with property in multiple states, they may owe state tax in more than one state. An estate planning attorney in your state can explain what state taxes explore to your situation.
The threshold is set to drop in 2026
The current high threshold is temporary. A tax law passed in 2017 doubled the federal estate tax threshold, but that increase is set to expire on December 31, 2025. Starting January 1, 2026, the threshold is scheduled to drop to approximately $7 million per person (adjusted for inflation).
This means estates that would not owe tax in 2024 or 2025 might owe federal estate tax in 2026 and beyond, unless Congress changes the law before the important date. Some people with estates between $7 million and $13.61 million are considering strategies to transfer wealth before 2026 to take advantage of the higher threshold while it lasts.
Congress could extend the higher threshold, lower it further, or leave it as scheduled. There is no certainty about what will happen, so it is worth discussing the 2026 change with an estate planning attorney if your estate is in this range.
How to learn about your estate will owe federal estate tax
The first step is to add up the value of everything you own: real estate, bank accounts, investments, retirement accounts, life insurance, vehicles, and personal property. Subtract any debts you owe. The result is your net worth, which is roughly what your estate will be worth when you die.
Compare that number to the current federal threshold. If your estate is below the threshold, you will not owe federal estate tax. If it is above, you will owe 40 percent on the amount over the threshold.
Keep in mind that some assets are included in your taxable estate even if you do not think of them as part of your estate. Life insurance proceeds, retirement account balances, and property you own jointly are all included. An estate planning attorney or tax professional can help you calculate your actual taxable estate and discuss strategies if you are close to the threshold.
Frequently Asked Questions
Do I owe federal estate tax if my estate is worth $10 million?
Not in 2024 or 2025, because the threshold is $13.61 million. Your estate would not owe federal estate tax. However, if the threshold drops to $7 million in 2026 as scheduled, an estate of $10 million would owe 40 percent tax on the $3 million above the new threshold, which equals $1.2 million in federal tax.
Can I reduce my estate to avoid federal estate tax?
Yes. Common strategies include giving money to family members during your lifetime (you can give up to a certain amount per year tax-free), setting up trusts, making charitable donations, and using life insurance trusts. An estate planning attorney can explain which strategies fit your situation and goals.
What is the difference between federal estate tax and state estate tax?
Federal estate tax is a tax owed to the U.S. government at a 40 percent rate on estates over $13.61 million (in 2024). State estate tax is a separate tax owed to your state, with its own rate and threshold. Some states have no estate tax at all. You may owe both, one, or neither depending on where you live and how large your estate is.
Does my life insurance count toward the federal estate tax threshold?
Yes. The proceeds from a life insurance policy are included in your taxable estate unless the policy is owned by an irrevocable trust or another entity. This can push an estate over the threshold even if other assets would not. An estate planning attorney can discuss ways to structure life insurance to reduce estate tax.
What happens if I do not file a federal estate tax return when I should?
The IRS can assess penalties and interest. The executor is responsible for filing Form 706 if the estate exceeds the threshold. If you are an executor and unsure whether to file, consult a tax professional or attorney. Filing when not strictly required can sometimes preserve unused thresholds for a surviving spouse, so it may be worth doing even if no tax is owed.