The federal estate tax applies only to estates larger than $13.61 million in 2024, and the tax rate on the amount above that threshold is 40 percent

The federal estate tax is a tax on the total value of a person's property when they die. It only applies if the estate exceeds a certain dollar amount, called the exemption. For 2024, that exemption is $13.61 million per person. Anything above that amount is taxed at a flat rate of 40 percent.

This means most estates pay no federal estate tax at all. An estate worth $10 million, for example, owes nothing. An estate worth $15 million owes 40 percent tax only on the $1.39 million that exceeds the exemption — which comes to about $556,000 in federal tax.

The exemption amount changes each year based on inflation. It was $12.92 million in 2023 and will be $13.61 million in 2024. After 2025, the exemption is scheduled to drop to roughly half that amount unless Congress changes the law.

Key Takeaways

  • The federal estate tax exemption for 2024 is $13.61 million per person, meaning estates below that value owe no federal estate tax.
  • The tax rate on amounts above the exemption is a flat 40 percent, with no graduated brackets.
  • Married couples can combine their exemptions to $27.22 million in 2024 if they file a joint return and use both exemptions.
  • The exemption amount changes yearly with inflation and is scheduled to drop significantly after 2025 unless Congress acts.
  • State estate taxes and inheritance taxes operate separately from the federal tax and have their own lower exemption thresholds.

How the exemption works for married couples

Married couples can use both spouses' exemptions if they plan ahead. In 2024, that means a combined exemption of $27.22 million. Without proper planning, a surviving spouse may lose the first spouse's unused exemption.

The process is called portability. When the first spouse dies, the executor must file a federal estate tax return — even if no tax is owed — to preserve the unused exemption for the surviving spouse. This return must be filed within nine months of death, though an extension can push that to 15 months.

If portability is not elected on that return, the surviving spouse can only use their own $13.61 million exemption, not the deceased spouse's. For couples with combined assets above $27.22 million, this can result in hundreds of thousands of dollars in unnecessary federal tax.

The difference between exemption and tax rate

The exemption is the threshold — the amount you can pass on tax-free. The tax rate is what you pay on anything above it. These are two separate numbers and both matter.

Suppose an estate is worth $20 million in 2024. The first $13.61 million passes to heirs with no federal tax. The remaining $6.39 million is subject to the 40 percent rate, resulting in $2.556 million in federal estate tax owed by the estate.

The 40 percent rate has been in place since 2013 and applies uniformly — there are no lower brackets for smaller amounts over the exemption. This is different from income tax, which uses graduated brackets.

How inflation affects the exemption each year

The exemption is adjusted annually for inflation using a formula tied to the Consumer Price Index. The IRS announces the new exemption amount in late October or early November for the following year.

In recent years, the exemption has grown steadily: $12.06 million in 2022, $12.92 million in 2023, and $13.61 million in 2024. The exact increase depends on inflation rates during the prior year.

This adjustment means that some estates that would have been taxable in one year may fall below the exemption in a later year if values stay the same — though inflation in asset values often moves in the opposite direction.

What happens to the exemption after 2025

The current high exemption amount is temporary. Under the Tax Cuts and Jobs Act of 2017, the exemption is scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress passes new legislation.

This means an estate worth $15 million that would owe no federal tax in 2024 could owe roughly $3.2 million in federal tax in 2026 if the law does not change. The exact amount depends on inflation adjustments between now and then.

Some people with large estates have accelerated their estate planning or made large gifts before 2026 to take advantage of the higher exemption while it lasts. This is a decision that depends on individual circumstances and should involve a tax professional or estate attorney.

State estate taxes and inheritance taxes are separate

Seventeen states and the District of Columbia have their own estate taxes or inheritance taxes. These operate independently from the federal tax and have much lower exemption thresholds.

For example, Massachusetts has a state estate tax with a $1 million exemption. New York's exemption is $6.94 million in 2024. Iowa has an inheritance tax (paid by heirs rather than the estate) with exemptions that vary by relationship to the deceased.

An estate may owe no federal tax but still owe state tax, or vice versa. The state where the deceased lived at death determines which state taxes explore, though real estate in other states may trigger tax in those states as well.

Frequently Asked Questions

Do I have to file a federal estate tax return if my estate is below the exemption?

Not always, but you may need to if you are married and want to preserve your spouse's unused exemption through portability. Even if no tax is owed, the return must be filed within nine months of death to make the election. A tax professional can advise whether filing is necessary in your situation.

What counts toward the estate tax exemption?

Nearly everything of value counts: real estate, bank accounts, investments, retirement accounts, life insurance proceeds, business interests, and personal property like vehicles or art. Some items may be excluded or valued differently, such as property left to a spouse or charitable gifts.

Can I give away money now to reduce my taxable estate?

Yes. You can give up to $18,000 per person per year in 2024 without using any of your lifetime exemption. Amounts above that reduce your exemption dollar-for-dollar. Married couples can give $36,000 per recipient per year. Gifts to spouses and charities have different rules.

Is the 40 percent rate the same for everyone?

Yes. The federal estate tax rate is a flat 40 percent on amounts above the exemption, with no variation based on who inherits or how much they receive. Some states have different rates or structures for their own estate or inheritance taxes.

What if my estate value changes between now and my death?

The exemption and tax are based on the estate's value on the date of death, not its value today. An estate worth $12 million now could be worth $20 million at death and trigger federal tax, or it could decline and owe nothing. This uncertainty is one reason some people work with estate planners.