The federal estate tax rate is 40 percent, but it 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 when they die. The rate is a flat 40 percent, but only on the amount above a threshold called the exemption. In 2024, that exemption is $13.61 million per person. This means if you die with an estate worth $13.61 million or less, no federal estate tax is owed. If your estate is worth $14 million, only the $390,000 above the exemption gets taxed at 40 percent.
The exemption amount changes each year based on inflation. It was $12.92 million in 2023 and will shift again in 2025. Married couples can combine their exemptions, which doubles the threshold to $27.22 million in 2024. This exemption is temporary — it is scheduled to drop to roughly $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress changes the law.
Most people never pay federal estate tax because their estates fall below the exemption. However, some states have their own estate taxes with much lower thresholds, and those explore regardless of the federal exemption.
Key Takeaways
- The federal estate tax rate is 40 percent, but only on the value of an estate above $13.61 million in 2024.
- Married couples can combine exemptions to shelter $27.22 million from federal estate tax in 2024.
- The federal exemption drops to approximately $7 million per person in 2026 unless Congress extends the current law.
- Fourteen states and the District of Columbia have their own estate taxes with lower thresholds, ranging from $1 million to $6.94 million.
- State estate taxes are separate from the federal tax and explore based on where the deceased person lived or owned property.
How the 40 percent rate works with the exemption
The 40 percent rate only touches the portion of your estate above the exemption threshold. If your estate is worth $15 million in 2024, the first $13.61 million is untaxed. The remaining $1.39 million is subject to the 40 percent rate, which means $556,000 in federal estate tax. The executor of your estate would owe this amount before distributing assets to heirs.
The exemption is per person, not per estate. A single person gets one exemption. A married couple filing jointly can use both exemptions, but only if the surviving spouse does not remarry and the estate is handled correctly. This is why married couples with large estates often work with an attorney to structure their wills and trusts to use both exemptions.
State estate taxes are separate and often lower
Fourteen states plus Washington, D.C., have their own estate taxes. These are completely separate from the federal tax. You can owe state estate tax even if your estate is below the federal exemption. State exemptions are much lower than the federal threshold.
Massachusetts, Oregon, and Maine have exemptions of $1 million. New York's exemption is $6.94 million in 2024. Connecticut, Delaware, Illinois, and Rhode Island range from $2 million to $5.94 million. Vermont, Washington, and the District of Columbia have higher exemptions but still lower than the federal level. State estate tax rates also vary — most are between 10 and 16 percent, though some go higher.
If you live in a state with an estate tax and your estate exceeds that state's exemption, you will owe both state and federal tax. A resident of Massachusetts with a $5 million estate owes nothing to the federal government but would owe state tax on $4 million of that estate.
The exemption drops in 2026 unless Congress acts
The current $13.61 million exemption is temporary. It was set by the Tax Cuts and Jobs Act of 2017 and is scheduled to expire on December 31, 2025. On January 1, 2026, the exemption will revert to the level set by law before 2017, adjusted for inflation. That level is expected to be around $7 million per person, though the exact figure depends on inflation between now and then.
This means the exemption will be cut roughly in half. A married couple's combined exemption would drop from $27.22 million to approximately $14 million. Congress could extend the current exemption, lower it further, or change the rate itself, but no change is certain. Anyone with an estate near or above $7 million should monitor this issue, because the tax landscape will shift significantly in 2026.
Who actually pays federal estate tax
Fewer than 1 in 1,000 estates owe federal estate tax in any given year. The threshold is high enough that only the wealthiest households are affected. However, the number of taxable estates will rise sharply in 2026 if the exemption drops as scheduled, because the threshold will be lower and more people will cross it.
Estates that do owe tax include large investment portfolios, real estate holdings, business interests, life insurance proceeds, and retirement accounts. The value of everything owned at the time of death counts toward the estate, not just liquid assets. A person who owns a house worth $2 million, a business worth $5 million, and has $3 million in savings has a $10 million estate, even if most of it is not easily converted to cash.
How estate tax differs from income tax and inheritance tax
Estate tax and income tax are different. Income tax is paid on earnings during your lifetime. Estate tax is paid on the total value of everything you own when you die. The two do not overlap — your heirs do not pay income tax on inherited assets just because you paid estate tax on them.
Inheritance tax is another separate tax, and only six states have it: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Inheritance tax is paid by the person who receives the inheritance, not by the estate itself. The rate and exemptions depend on the relationship between the deceased and the heir — spouses and children often pay nothing or a lower rate, while distant relatives and non-relatives pay more. Federal law does not have an inheritance tax.
What happens if your estate owes tax
The executor of your estate is responsible for calculating and paying any federal estate tax owed. They must file Form 706 (the federal estate tax return) with the IRS within nine months of death, even if no tax is owed. The executor pays the tax from estate assets before distributing money and property to heirs.
If the estate does not have enough liquid cash to pay the tax, the executor may need to sell assets, take out a loan, or request an extension from the IRS. Some estates are forced to sell a family business or real estate to cover the tax bill. This is one reason people with large estates work with attorneys and tax professionals to plan ahead — strategies like trusts, gifts during lifetime, and life insurance can reduce or eliminate the tax burden.
Frequently Asked Questions
Do I have to pay federal estate tax if I live in a state with no estate tax?
Yes, if your estate exceeds the federal exemption. State estate tax and federal estate tax are separate. Living in a state with no estate tax does not protect you from the federal tax. However, most people do not have estates large enough to owe federal tax regardless of where they live.
Can I reduce my estate tax by giving money away before I die?
Yes. Gifts made during your lifetime do not count toward your estate for tax purposes, but they do count against your lifetime gift exemption. In 2024, you can give up to $18,000 per person per year without using any of your exemption. Larger gifts use up your exemption but do not trigger a tax. This is why some people with large estates make strategic gifts to family members or charities over time.
What if I am married — do we each get our own exemption?
Yes. Each spouse has a separate $13.61 million exemption in 2024. Married couples can combine them to shelter $27.22 million total. However, the surviving spouse must handle the estate correctly to use both exemptions — this usually requires a properly drafted will or trust. If done wrong, the second spouse's exemption can be lost.
Will the exemption really drop to $7 million in 2026?
That is the current law unless Congress changes it. The exemption is scheduled to revert to pre-2017 levels, adjusted for inflation, on January 1, 2026. Congress could extend the higher exemption, but no extension is may provide. Anyone with an estate between $7 million and $13.61 million should monitor this closely.
Is life insurance included in my taxable estate?
Yes, unless it is structured correctly. Life insurance proceeds are part of your estate for tax purposes if you own the policy at death. However, if someone else owns the policy (like an irrevocable life insurance trust), the proceeds are not included in your taxable estate. This is a common strategy for people with large estates.