The 2025 federal estate tax exemption is $13.61 million per person

For 2025, you can pass $13.61 million to your heirs without owing federal estate tax. This is the amount the IRS allows each individual to transfer during their lifetime or at death before the 40 percent federal estate tax kicks in. If you are married, you and your spouse can each use your own exemption, potentially sheltering $27.22 million combined.

This number changes every year because it is tied to inflation. The IRS announced the 2025 figure in October 2024, and it will shift again in January 2026. The exemption applies whether you give money away while you are alive or leave it in your will — the IRS counts both against your lifetime limit.

The exemption is much higher than it was before 2018, and it is scheduled to drop significantly after 2025 unless Congress acts. Understanding where the number stands now and what happens next matters if you have a substantial estate or are planning major gifts.

Key Takeaways

  • The 2025 exemption of $13.61 million per person is indexed to inflation each year and was last adjusted in October 2024.
  • Married couples can combine their exemptions to shelter up to $27.22 million from federal estate tax.
  • The exemption applies to both lifetime gifts and money left at death, and using it during your lifetime does not trigger a tax — it straightforward reduces what you can pass tax-free later.
  • The exemption is set to drop to roughly $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress extends the current law.
  • Estates smaller than the exemption amount owe no federal estate tax regardless of size, though some states have their own estate taxes with lower thresholds.

How the exemption works in practice

The exemption is a single bucket you can use however you want. You can give $5 million to your daughter, $3 million to a trust, and $5.61 million to your son — all during your lifetime — and use up your entire 2025 exemption without owing tax. Or you can leave it all in your will. The IRS does not care which you choose, as long as the total does not exceed $13.61 million.

When you use part of your exemption during your lifetime, you file Form 709 (the gift tax return) to report it to the IRS. This does not mean you owe tax — it means you are notifying the IRS that you used some of your exemption. The actual tax bill only arrives if you exceed the exemption entirely.

If you die without using your full exemption, your executor does not have to do anything special. Your estate straightforward pays tax only on the amount above $13.61 million. If your estate is smaller, there is no federal estate tax bill at all, even if you never filed a gift tax return.

Why the exemption changes every year

Congress set the exemption to adjust automatically for inflation each year. The IRS calculates the new figure in the fall and announces it before the new year begins. In 2017, the exemption was $5.49 million per person. By 2024, it had grown to $13.61 million. The increase reflects the rising cost of living, not a change in tax policy.

The exemption has been this high only since 2018. Before that, it was much lower — around $2 million in 2008. The Tax Cuts and Jobs Act of 2017 roughly doubled it and indexed it to inflation. That law is set to expire on December 31, 2025, which is why the exemption is scheduled to drop sharply in 2026.

What happens to the exemption after 2025

On January 1, 2026, the exemption is scheduled to revert to approximately $7 million per person (adjusted for inflation from 2009 levels). This is not certain — Congress could extend the current $13.61 million exemption, raise it, lower it, or leave it to expire as planned. As of now, no law has changed the scheduled sunset.

If the exemption does drop to $7 million, estates between $7 million and $13.61 million will suddenly owe federal tax on the difference. An estate worth $10 million would owe tax on $3 million at a 40 percent rate — roughly $1.2 million. This is why some people with estates in that range are considering lifetime gifts in 2025 to lock in the higher exemption before it shrinks.

You cannot carry forward unused exemption from one year to the next. If you do not use your $13.61 million in 2025, you do not get to add the unused portion to your 2026 exemption. You get only what the law allows in each year.

State estate taxes and the federal exemption

The federal exemption does not protect you from state estate taxes. Seventeen states plus Washington, D.C., have their own estate or inheritance taxes, and most of them have much lower exemptions than the federal amount. New York, for example, has a $6.94 million exemption in 2025. Massachusetts has no exemption at all — any estate over $1 owes state tax.

If you live in a state with an estate tax, you may owe state tax even if your estate is small enough to avoid federal tax. The two systems are separate. You file both a federal estate tax return (Form 706) and a state return if required, and you may owe tax to the state while owing nothing to the federal government, or vice versa.

Who actually pays estate tax

The vast majority of estates pay no federal estate tax at all. In 2023, fewer than 4,000 estates nationwide owed any federal estate tax, even though roughly 2.7 million people died that year. The exemption is so high that only the wealthiest estates trigger the tax.

You do not need to file a federal estate tax return unless your estate exceeds the exemption. If you die in 2025 with an estate worth $10 million, your executor files no federal return and owes no federal tax. If the estate is worth $15 million, your executor must file Form 706 and pay tax on the $1.39 million over the exemption.

Planning around the 2026 exemption drop

Some people with estates between $7 million and $13.61 million are making large gifts in 2025 to use the higher exemption before it shrinks. This strategy works only if you can afford to give the money away now and do not need it later. You also have to file Form 709 to report the gift to the IRS, even though you owe no tax.

This is not a race or an emergency. If you are unsure whether your estate will exceed $7 million in 2026, or if you do not know your estate's current value, there is no urgent reason to act. Many estates will fall below the 2026 exemption regardless. A conversation with an estate attorney or tax professional who knows your situation is more useful than a general strategy.

Frequently Asked Questions

Does the exemption explore to gifts I make while I am alive?

Yes. Gifts you make during your lifetime count against your exemption just like money you leave in your will. If you give $5 million to your child in 2025, you have $8.61 million left to pass tax-free at death. You report the gift on Form 709, but you owe no tax — you are straightforward using part of your exemption.

Can my spouse and I each use the full $13.61 million exemption?

Yes. Each person has their own $13.61 million exemption in 2025. A married couple can shelter up to $27.22 million combined. If one spouse dies without using their full exemption, the surviving spouse can sometimes claim the unused amount, but only if the estate files Form 706 and makes a specific election — this is called "portability" and requires professional help to set up correctly.

What if my estate is worth less than $13.61 million?

You owe no federal estate tax, and your executor does not file a federal estate tax return. The exemption covers you automatically. Your state may still require an estate tax return if you live in one of the 17 states with an estate tax, so check your state's rules.

If Congress does not act, will my exemption really drop to $7 million in 2026?

That is the current law. The exemption is scheduled to revert to roughly $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress passes new legislation before then. Congress could extend the current exemption, change it, or let it expire as planned. No change has been made as of now.

Do I owe tax if I give away money during my lifetime?

No. Lifetime gifts do not trigger a tax bill. You use part of your exemption and file Form 709 to report the gift, but you owe nothing to the IRS. Tax is due only if you exceed your total exemption — either during your lifetime or at death.