The federal inheritance tax threshold for 2024

The federal government does not tax most inheritances. Instead, it taxes estates — the total value of everything a person leaves behind — only when that estate exceeds a certain size. For 2024, that threshold is $13.61 million per person. If your estate is smaller than that, your heirs owe no federal tax on what they receive.

This threshold changes every year based on inflation. It was $12.92 million in 2023 and will shift again in 2025. The key point: unless you are leaving behind more than roughly $13.6 million in assets, the federal estate tax does not explore to your situation at all.

However, this threshold is set to drop significantly. Unless Congress acts, the limit will fall to around $7 million per person on January 1, 2026. That change would affect far more estates. If you have substantial assets, it is worth tracking this date.

Key Takeaways

  • Federal estate tax only applies when an estate exceeds $13.61 million in 2024, a threshold that rises with inflation each year.
  • Most people never pay federal inheritance tax because their estates fall well below the threshold.
  • Some states impose their own inheritance or estate taxes with much lower thresholds, ranging from $1 million to $6 million depending on where you live.
  • The federal threshold is scheduled to drop to around $7 million per person in 2026 unless Congress changes the law.
  • Your heirs do not owe tax on what they receive; the tax is paid by the estate itself before distribution.

State inheritance taxes work differently from federal tax

Twelve states and the District of Columbia impose their own estate or inheritance taxes, and these have much lower thresholds than the federal limit. Some states tax the estate itself (called an estate tax), while others tax what the heir receives (called an inheritance tax). The rules and rates vary widely.

New Jersey, for example, has an inheritance tax that applies to estates over $700,000, though spouses and direct descendants are often exempt. Iowa taxes inheritances starting at $40,000 for non-relatives. Maryland's estate tax kicks in at $5.75 million. If you live in or are leaving property in a state with its own tax, you may owe state tax even if the federal threshold is not reached.

The states with inheritance or estate taxes are: Connecticut, Delaware, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, and Washington. If you live in any of these states or own real estate there, check your state's specific rules — the thresholds and exemptions differ significantly.

How the tax is calculated and paid

Estate tax is calculated on the total value of the estate, including real estate, investments, bank accounts, retirement accounts, life insurance proceeds, and business interests. Certain items may be deducted — debts, funeral expenses, and charitable donations, for example — before the tax is computed.

The estate itself pays the tax, not the individual heirs. The executor or administrator of the estate files a federal estate tax return (Form 706) if required and pays any tax owed before distributing money and property to beneficiaries. This means heirs typically receive their inheritance after taxes have already been settled, though in some cases the estate may not have enough liquid assets to pay the tax without selling property.

Federal estate tax rates are progressive, starting at 40% on the amount above the threshold. So if an estate is $14.61 million in 2024, only the $1 million above the threshold is taxed, and that $1 million is taxed at 40%. State rates vary — some are flat percentages, others are progressive like the federal system.

Married couples and the portability election

Married couples can combine their thresholds through something called portability. If one spouse dies and the estate is below the threshold, the surviving spouse can elect to preserve the unused portion of the deceased spouse's threshold. This effectively doubles the limit to $27.22 million for 2024.

To use portability, the executor must file a federal estate tax return even if no tax is owed. This is a critical step — if you skip it, you lose the ability to use the deceased spouse's unused threshold. Many people miss this requirement because they assume no return is needed when the estate is below the threshold. If you are the surviving spouse of someone who recently died, consult a tax professional or estate attorney about whether filing is necessary for your situation.

Life insurance and retirement accounts that bypass the threshold

Some assets pass to heirs outside the normal estate process and may have different tax treatment. Life insurance proceeds, for example, are included in the taxable estate if the deceased person owned the policy, but they pass directly to the named beneficiary without going through probate. Retirement accounts like IRAs and 401(k)s also pass directly to named beneficiaries.

These assets still count toward the estate tax threshold, so they do not escape taxation just because they bypass probate. However, they do avoid probate fees and delays. If you have substantial life insurance or retirement savings, the total of all these assets — not just what goes through your will — determines whether estate tax applies.

Planning strategies for larger estates

If your estate is close to or above the threshold in your state, or if you expect it to be above the federal threshold after 2026, several strategies can reduce or eliminate the tax. Gifting money or assets to family members during your lifetime uses up your lifetime gift tax exemption (which is the same as your estate tax exemption) but removes those assets from your taxable estate. Charitable donations reduce the taxable estate dollar-for-dollar. Trusts, family limited partnerships, and other structures can also reduce estate tax exposure.

These strategies require planning with a tax professional or estate attorney — they are not something to attempt on your own. The rules are complex, and mistakes can be expensive. If you have a substantial estate or own a business, consulting a professional before you need it is far cheaper than trying to fix problems after someone dies.

What happens if you do not plan and the tax applies

If an estate exceeds the threshold and no planning was done, the executor must still file a return and pay the tax. The estate may need to sell assets — sometimes including a family home or business — to raise the cash to pay the bill. This is why planning matters: a 40% federal tax on a large estate can force the sale of things the heirs wanted to keep.

If the estate does not have enough liquid assets to pay the tax, the executor can request an extension to pay over time, but interest accrues. In some cases, if a family business or farm makes up a large portion of the estate, special rules allow the tax to be paid in installments over 14 years. These options exist, but they require knowing about them and filing correctly — another reason to involve a professional if the estate is substantial.

Frequently Asked Questions

Do my heirs have to pay income tax on what they inherit?

No. Inheritances are not considered income to the person who receives them, so there is no federal income tax on inherited money or property. However, if the inherited asset later generates income — such as interest on a bank account or dividends on stock — that income is taxable to the heir going forward.

What if I give away money to my kids before I die?

Gifts during your lifetime use your lifetime exemption, which is the same as your estate tax exemption. You can give up to $13.61 million total over your lifetime without triggering gift tax (in 2024). Annual gifts of up to $18,000 per person do not count against this limit. Gifts to spouses are unlimited. Consult a tax professional if you plan to make large gifts.

Does a will avoid estate tax?

No. Whether you have a will or not, estate tax is based on the total value of your estate, not on how it is distributed. A will does not reduce the taxable estate or change whether tax is owed. However, a will and other planning documents are still important for other reasons — they control who gets what and can help reduce other costs and delays.

What if my estate is below the threshold but I live in a state with an inheritance tax?

You may still owe state tax even if federal tax does not explore. Each state sets its own threshold and rules. For example, you could owe New Jersey inheritance tax on an estate of $750,000 even though the federal threshold is much higher. Check your state's specific rules or consult a professional in your state.

When does the executor file the estate tax return?

The federal estate tax return (Form 706) is due nine months after the person's death, though an extension can be requested. If the estate is below the threshold, no return is required — unless you want to use portability to preserve the deceased spouse's unused exemption, in which case you must file even with no tax owed. State returns have their own important date, usually similar to the federal timeline.