The federal estate tax threshold for 2024 is $13.61 million per person

The federal estate tax applies only if your total assets at death exceed $13.61 million in 2024. This means most people never owe it. The threshold is adjusted each year for inflation, so the number changes annually. If your estate is smaller than this amount, the federal government does not tax it when you die.

The threshold is per person, not per household. A married couple can each use their own threshold, which effectively doubles the limit to $27.22 million for 2024 if both spouses have assets. This is called portability — the surviving spouse can use the deceased spouse's unused threshold.

State estate taxes and inheritance taxes work differently and have much lower thresholds. Some states tax estates as small as $1 million or even less. If you live in a state with its own estate tax, you may owe state tax even if you owe nothing to the federal government.

Key Takeaways

  • Federal estate tax only applies to estates larger than $13.61 million per person in 2024, and this threshold rises each year with inflation.
  • The threshold is set to drop to roughly $7 million per person in 2026 unless Congress changes the law, which would affect far more estates.
  • State estate taxes and inheritance taxes have much lower thresholds and explore in only a handful of states, regardless of the federal limit.
  • Married couples can combine their thresholds through portability, effectively doubling the amount that passes tax-free to heirs.
  • The tax rate on estates that do exceed the threshold is 40 percent of the amount over the limit.

Why the threshold matters more than the tax rate

The federal estate tax rate is 40 percent, but that rate only applies to the portion of your estate that exceeds the threshold. If your estate is $14 million and the threshold is $13.61 million, you owe 40 percent on only $390,000 — roughly $156,000 in tax. The first $13.61 million passes to your heirs tax-free.

Because the threshold is so high, fewer than one in a thousand estates pay federal estate tax in any given year. The real concern for most people is not whether they will owe the tax, but whether the threshold will change. Congress set the current threshold to expire at the end of 2025, which means it will drop to approximately $7 million per person in 2026 unless lawmakers extend it. That change would affect many more estates.

State estate and inheritance taxes have lower thresholds

Twelve states and the District of Columbia have their own estate taxes, separate from the federal tax. These state taxes kick in at much lower thresholds. Massachusetts and Oregon tax estates over $1 million. Connecticut and Delaware tax estates over $5.1 million and $5.45 million respectively. New York taxes estates over $6.94 million. The exact threshold varies by state and changes annually.

Six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — have inheritance taxes instead of estate taxes. An inheritance tax is paid by the person who receives the money, not by the estate itself. The tax rate and threshold depend on who inherits: spouses and children often pay nothing or a lower rate, while more distant relatives or non-relatives pay higher rates.

If you live in a state with an estate or inheritance tax and your assets are substantial, you may owe state tax even if your estate is well below the federal threshold. The state tax is separate and does not reduce what you owe federally.

How the threshold changes each year

The IRS adjusts the federal estate tax threshold annually based on inflation. In 2023, it was $12.92 million per person. In 2024, it rose to $13.61 million. The increase is usually announced in October or November for the following year. If inflation slows, the threshold may stay the same or rise only slightly.

The bigger change is coming in 2026. Unless Congress acts, the threshold will drop to roughly $7 million per person — the level set by law before the 2017 tax changes. This sunset is automatic and would happen without a new vote. Many financial advisors watch this important date closely because it could affect estates that are currently below the radar.

What counts toward the threshold

Your taxable estate includes nearly everything you own: real estate, bank accounts, investments, retirement accounts, life insurance proceeds, and business interests. It also includes the value of gifts you made during your lifetime that exceeded the annual gift tax threshold (which is $18,000 per recipient in 2024). Certain items are excluded, such as property left to a surviving spouse and charitable donations.

The value used is the fair market value on the date of death, not what you originally paid. If you own a house worth $500,000 and stock worth $2 million, those amounts count toward your threshold. If you own a business, the IRS values it based on earnings and comparable sales, which can be complex and sometimes requires a professional appraisal.

Planning strategies if your estate is close to the threshold

If your estate is approaching the federal threshold or is already above a state threshold, there are legal ways to reduce what your heirs owe. The most common is a revocable living trust, which does not reduce the tax but can simplify the process for your heirs and avoid probate. Another option is to make annual gifts during your lifetime — you can give up to $18,000 per person per year in 2024 without using any of your lifetime threshold.

Married couples should make sure their estate plan uses portability so that the surviving spouse can use the deceased spouse's unused threshold. Without proper planning, a surviving spouse might not be able to claim this benefit. A will or trust that names a surviving spouse as the main beneficiary does not automatically trigger portability — your executor must file a specific form with the IRS.

Charitable donations are another tool. Money left to a may have access to charity is not subject to estate tax. Some people use a charitable remainder trust, which pays them or their heirs income during their lifetime and then passes the remainder to charity, reducing the taxable estate.

What happens if your estate exceeds the threshold

If your estate is larger than the threshold when you die, your executor or trustee must file Form 706 (the federal estate tax return) with the IRS. This return is due nine months after death, though an extension can be requested. The return calculates the tax owed and reports the value of all assets in the estate.

The estate itself pays the tax, not the individual heirs. This means the money comes out of the estate before assets are distributed. If the estate does not have enough liquid cash to pay the tax, assets may need to be sold. This is why some people buy life insurance in a trust — the insurance proceeds provide cash to pay the tax without forcing the sale of a family business or home.

Frequently Asked Questions

Will the estate tax threshold go down in 2026?

Yes, unless Congress extends the current law. The threshold is set to drop from $13.61 million to roughly $7 million per person at the end of 2025. This is automatic and would happen without a new vote. Many estates that are currently below the threshold could be affected if the change takes place.

Do I owe estate tax if I leave everything to my spouse?

No. Property left to a surviving spouse is not subject to federal estate tax, regardless of the amount. This is called the marital deduction. However, the surviving spouse's own estate will include this property, so it could be taxed when the surviving spouse dies unless it is below the threshold at that time.

Does life insurance count toward the estate tax threshold?

Yes, life insurance proceeds are included in your taxable estate unless the policy is owned by an irrevocable trust or another person. If you own the policy, the full death benefit counts toward your threshold. Placing the policy in a trust before death can remove it from the taxable estate.

What is the difference between estate tax and inheritance tax?

Estate tax is paid by the estate itself before assets go to heirs. Inheritance tax is paid by the person who receives the money. Only six states have inheritance tax. The tax rate and who pays depend on the state and sometimes on who inherits.

Can I reduce my estate tax by giving money away before I die?

Yes. You can give up to $18,000 per recipient per year in 2024 without using any of your lifetime threshold. Gifts above that amount use your lifetime threshold but do not trigger a tax. This strategy works best if you have many years and many potential recipients.