The federal estate tax applies only to estates larger than $13.61 million in 2024

The federal estate tax is a tax on the total value of a person's property, money, and assets when they die. The exemption threshold — the amount you can leave without owing any federal estate tax — is $13.61 million per person in 2024. If your estate is worth less than that, you owe nothing to the federal government. If it exceeds that amount, the tax applies only to the portion above the threshold.

The tax rate on estates that do exceed the exemption is a flat 40 percent. This is one of the highest tax rates in the U.S. tax code, but it affects very few people because the exemption is so high. The exemption amount changes each year based on inflation, so the threshold will be different in 2025.

Your state may also have its own estate tax or inheritance tax, which is separate from the federal tax. Some states tax estates as small as $1 million, while others have no estate tax at all. The federal exemption does not protect you from state taxes.

Key Takeaways

  • The federal estate tax exemption is $13.61 million per person in 2024, meaning estates below that amount owe no federal estate tax.
  • The tax rate on estates that exceed the exemption is 40 percent, applied only to the amount above the threshold.
  • The exemption amount increases each year with inflation, so the threshold will change in 2025 and beyond.
  • State estate taxes and inheritance taxes are separate from the federal tax and may explore to much smaller estates depending on where you live.
  • Married couples can combine their exemptions, effectively doubling the threshold to $27.22 million in 2024 if both spouses have not used their exemption.

How the exemption threshold works

The exemption is the amount of wealth you can pass to your heirs without triggering federal estate tax. In 2024, that amount is $13.61 million. If your estate is worth $10 million, you owe nothing. If it is worth $15 million, you owe 40 percent tax only on the $1.39 million above the exemption — that is $556,000 in federal estate tax.

The exemption applies to your entire estate combined: your house, bank accounts, investments, retirement accounts, life insurance, and any other property you own. It does not matter whether you own these things outright or jointly with someone else — the full value counts toward your estate for tax purposes.

If you are married, each spouse has their own $13.61 million exemption. If the first spouse to die does not use their full exemption, the surviving spouse can claim the unused portion, bringing their total exemption to as much as $27.22 million. This is called portability, and it requires filing a federal estate tax return even if no tax is owed, so the unused exemption is recorded.

When the exemption changes

The $13.61 million exemption is adjusted for inflation each year. In 2023, it was $12.92 million. In 2022, it was $12.06 million. The Internal Revenue Service announces the new threshold in October or November of each year, and it takes effect on January 1.

The exemption is scheduled to drop significantly after 2025. Under current law, the exemption will fall to approximately $7 million per person (adjusted for inflation) starting January 1, 2026, unless Congress changes the law. This means estates between $7 million and $13.61 million that are currently safe from federal tax may owe tax after 2025, depending on what Congress does.

State estate and inheritance taxes

Seventeen states and the District of Columbia have their own estate taxes, and six states have inheritance taxes. These are completely separate from the federal tax, and the federal exemption does not protect you from them. Some states tax estates as small as $1 million or $2 million, while others set their threshold much higher.

An estate tax is paid by the estate itself before money goes to heirs. An inheritance tax is paid by the person who receives the money. A few states have both. If you live in or own property in a state with an estate or inheritance tax, you may owe state tax even if your estate is well below the federal exemption threshold.

For example, Massachusetts has a state estate tax on estates over $1 million. Oregon taxes estates over $1 million. New York taxes estates over $6.94 million in 2024. If you live in one of these states, you should understand your state's rules separately from the federal rules.

What counts toward your estate

Your taxable estate includes nearly everything you own at the time of death: your primary home and any other real estate, bank accounts and savings, investment accounts, retirement accounts like IRAs and 401(k)s, life insurance proceeds, vehicles, jewelry, art, and business interests. It also includes any gifts you made during your lifetime that exceeded the annual gift tax exclusion (which is $18,000 per recipient in 2024).

Some things do not count toward your estate. Money you leave to a surviving spouse is not taxed, as long as the spouse is a U.S. citizen. Charitable donations are not taxed. Medical and education expenses paid directly to the provider on someone else's behalf are not taxed. Life insurance proceeds are usually not taxed if the policy is owned by someone other than you.

The value of your estate is determined as of the date of death, not the date you acquired the property. If you bought a house for $300,000 and it is worth $800,000 when you die, the $800,000 value counts toward your estate.

Planning strategies for large estates

People with estates near or above the exemption threshold often work with an estate planning attorney to reduce the amount of tax their heirs will owe. Common strategies include setting up trusts, making gifts during your lifetime (which use your lifetime gift exemption but remove the asset from your estate), establishing charitable giving plans, and using life insurance in specific ways.

Because the exemption is scheduled to drop after 2025, some people with estates between $7 million and $13.61 million are making large gifts now to use their current exemption before it shrinks. These strategies are complex and depend on your specific situation, so they require professional guidance.

If your estate is below the current exemption, you generally do not need to do special planning for federal estate tax purposes. However, you may still want a will or trust for other reasons, such as naming guardians for minor children or controlling how your property is distributed.

Frequently Asked Questions

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

Not usually. If your estate is below $13.61 million in 2024 and you are not claiming portability (the unused exemption of a deceased spouse), you do not need to file a federal estate tax return. However, your executor may need to file other returns, such as an income tax return for the estate itself, depending on how much income the estate earned.

What happens if I give away money or property while I am alive?

Gifts during your lifetime do not trigger a tax as long as they are below the annual exclusion amount, which is $18,000 per recipient in 2024. Gifts above that amount use your lifetime exemption. For example, if you give $50,000 to one person, the $32,000 above the annual exclusion reduces your $13.61 million exemption to $13.578 million. This is tracked on a gift tax return, but you do not owe tax until your total lifetime gifts and estate exceed your exemption.

Can my spouse and I split our exemptions?

Yes, through portability. If one spouse dies and does not use their full exemption, the surviving spouse can claim the unused portion by filing an estate tax return within nine months of the death (or within nine months of the extended important date if an extension is filed). This effectively doubles the exemption for the surviving spouse's estate. Without this election, the unused exemption is lost.

Will the exemption really drop to $7 million in 2026?

Under current law, yes. The exemption is scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress passes new legislation to change it. Congress could extend the current high exemption, lower it further, or make other changes. The rules may be different by the time 2026 arrives.

Does the federal estate tax explore to retirement accounts like 401(k)s and IRAs?

Yes. The full value of your retirement accounts counts toward your taxable estate, even though your beneficiaries will also owe income tax on the money they withdraw. This can result in both estate tax and income tax on the same money. Some people use life insurance or other strategies to help their heirs cover these taxes.