Federal Estate Tax: Complete Guide 2026
Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.
Federal Estate Tax: Complete Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional or estate planning attorney for your specific situation.
The federal estate tax applies to the transfer of wealth at death. For 2026, the estate tax landscape is projected to undergo a significant change: the Tax Cuts and Jobs Act (TCJA) doubled exemption is scheduled to sunset, potentially reducing the federal estate tax exemption from approximately ~$13.61 million (2024 level) to approximately ~$7 million per person (adjusted for inflation). This reduction would dramatically increase the number of estates subject to federal estate tax. Understanding the current rules and the projected changes is essential for estate planning.
Federal Estate Tax Exemption and Rates (2026)
| Parameter | Projected 2026 Level |
|---|---|
| Individual exemption (if TCJA sunsets) | ~$7.00 million |
| Individual exemption (if TCJA extended) | ~$14.00 million |
| Married couple (portability) | ~$14.00 million (sunset) / ~$28.00 million (extended) |
| Top marginal tax rate | ~40% |
| Lowest bracket rate | ~18% |
Critical Note: Whether the TCJA exemption level is extended, modified, or allowed to sunset depends on Congressional action. As of early 2026, the outcome remains uncertain. Consult an estate planning attorney for the most current guidance.
Federal Estate Tax Rate Schedule (Projected 2026)
| Taxable Estate (Over Exemption) | Tax Rate |
|---|---|
| $0 — $10,000 | ~18% |
| $10,001 — $20,000 | ~20% |
| $20,001 — $40,000 | ~22% |
| $40,001 — $60,000 | ~24% |
| $60,001 — $80,000 | ~26% |
| $80,001 — $100,000 | ~28% |
| $100,001 — $150,000 | ~30% |
| $150,001 — $250,000 | ~32% |
| $250,001 — $500,000 | ~34% |
| $500,001 — $750,000 | ~37% |
| $750,001 — $1,000,000 | ~39% |
| Over $1,000,000 | ~40% |
The graduated rate structure means the effective rate on estates just above the exemption is well below the top ~40% rate. An estate exceeding the exemption by $1 million would face an estimated effective tax of approximately ~$345,800 on that excess.
How the Federal Estate Tax Works
The Unified Credit and Exemption
The federal estate tax exemption (technically called the “unified credit”) is the amount each person can transfer at death (or during life through gifts) without incurring federal estate or gift tax. The exemption amount is “unified” because lifetime gifts and the estate at death share the same exemption pool.
Portability Between Spouses
The surviving spouse can claim the deceased spouse’s unused exemption through portability. This effectively doubles the exemption for married couples. To claim portability, the executor must file a federal estate tax return (Form 706) for the first spouse to die, even if no tax is owed. Failure to file forfeits the deceased spouse’s unused exemption.
What Is Included in the Taxable Estate
The gross estate includes:
- Real estate, bank accounts, investment accounts
- Retirement accounts (IRAs, 401(k)s)
- Life insurance proceeds (if the deceased owned the policy)
- Business interests and partnerships
- Trusts where the deceased retained certain powers
- Jointly held property (proportional share)
Deductions include funeral expenses, debts, administrative costs, charitable bequests, and the unlimited marital deduction for assets passing to a surviving spouse.
States with Their Own Estate or Inheritance Tax
In addition to the federal estate tax, approximately 17 states and D.C. impose their own estate or inheritance taxes, often with much lower exemptions:
| State | Type | Approximate Exemption |
|---|---|---|
| Massachusetts | Estate tax | ~$2.00 million |
| Oregon | Estate tax | ~$1.00 million |
| New York | Estate tax | ~$6.94 million |
| Washington | Estate tax | ~$2.193 million |
| Maryland | Both estate and inheritance | ~$5.00 million (estate) |
| Pennsylvania | Inheritance tax | No exemption (flat rates by relationship) |
| Iowa | Inheritance tax (phasing out) | Varies by relationship |
States with low exemptions can create significant combined tax burdens. An estate worth ~$5 million may owe no federal tax but could face substantial state estate tax in Massachusetts or Oregon.
TCJA Sunset: What Could Change
The Tax Cuts and Jobs Act of 2017 roughly doubled the estate tax exemption. This provision is scheduled to sunset after December 31, 2025. If Congress does not extend it:
| Scenario | Individual Exemption | Married Couple |
|---|---|---|
| TCJA in effect (2024) | ~$13.61 million | ~$27.22 million |
| Post-sunset (projected 2026) | ~$7.00 million | ~$14.00 million |
| Reduction | ~$6.61 million | ~$13.22 million |
This reduction would approximately triple the number of estates subject to federal estate tax. Estates between approximately ~$7 million and ~$14 million that are currently exempt would become taxable.
Tips for Minimizing Estate Tax Exposure
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Use the annual gift tax exclusion. Each person can gift up to approximately ~$19,000 per recipient per year (projected 2026) without using any lifetime exemption. For a married couple with three children, this allows approximately ~$114,000 per year in tax-free transfers.
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Consider irrevocable life insurance trusts (ILITs). Life insurance proceeds are includable in the estate if the deceased owned the policy. Transferring policy ownership to an ILIT removes the proceeds from the taxable estate.
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Maximize charitable giving. Charitable bequests are fully deductible from the taxable estate. Charitable remainder trusts (CRTs) and donor-advised funds can provide both estate tax and income tax benefits.
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File for portability. Even if the first spouse to die has a small estate, filing Form 706 preserves the unused exemption for the surviving spouse. This is essentially free insurance.
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Consider grantor retained annuity trusts (GRATs). GRATs can transfer appreciation above the IRS hurdle rate to beneficiaries with little or no gift tax cost.
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Plan before the sunset. If the TCJA exemption is not extended, making large gifts before the end of 2025 (or whenever the sunset takes effect) locks in the higher exemption amount under the IRS “anti-clawback” rule.
Key Takeaways
- The federal estate tax exemption may drop from approximately ~$13.61 million to approximately ~$7.00 million per person if the TCJA sunsets
- The top federal estate tax rate is ~40% on amounts above the exemption
- Portability allows married couples to effectively double their exemption, but requires filing Form 706
- Approximately 17 states impose their own estate or inheritance taxes with lower exemptions
- Proactive estate planning using gifts, trusts, and charitable strategies can substantially reduce estate tax exposure
Next Steps
- See state-specific estate taxes at Estate Tax in New York 2026 or Estate Tax in Washington 2026
- Learn about inheritance tax at Inheritance Tax in Pennsylvania 2026
- Explore capital gains treatment at Capital Gains Tax Guide 2026
- Calculate your overall tax position at Tax Bracket Calculator 2026
- Consult a professional: Hire a Tax Professional