For 2026, the federal estate tax exemption is $15 million per person, or $30 million for a married couple that uses portability, and the top rate on anything above the exemption is 40%.1Internal Revenue Service. What’s New — Estate and Gift Tax The One Big Beautiful Bill Act, signed into law on July 4, 2025, made this higher exemption permanent and set 2026 as the new base year for future inflation adjustments. The return, Form 706, is due nine months after the date of death.
What Changed for 2026
The 2017 Tax Cuts and Jobs Act roughly doubled the estate tax exemption on a temporary basis, and that increase was scheduled to expire on December 31, 2025. Absent congressional action, the exemption would have dropped to roughly $7 million per person in 2026 after inflation adjustments.2Library of Congress. Reference Table: Expiring Provisions in the Tax Cuts and Jobs Act (TCJA, P.L. 115-97)
That reversion never happened. The One Big Beautiful Bill Act rewrote the underlying statute, replacing the old $5 million base with a new $15 million base, resetting the inflation-adjustment reference year to 2026, and striking the sunset provision.3Congress.gov. Text – H.R.1 – 119th Congress (2025-2026): An Act to Provide for Reconciliation The exemption rose from $13.99 million in 2025 to $15 million in 2026, and it will keep adjusting upward for inflation starting in 2027.1Internal Revenue Service. What’s New — Estate and Gift Tax This is a permanent baseline, not another temporary extension.
How the Tax Is Calculated
The estate tax applies to the “gross estate,” which is everything the decedent owned or had an interest in at death: real estate, bank accounts, investments, retirement accounts, life insurance proceeds, and business interests.4Internal Revenue Service. Estate Tax If it has value and the decedent owned it, it counts.
Several deductions bring the gross estate down to the “taxable estate”: debts owed by the decedent, funeral expenses, estate administration costs, property passing to a surviving spouse under the unlimited marital deduction, charitable bequests, and state death taxes actually paid.5Internal Revenue Service. Publication 559 (2025), Survivors, Executors, and Administrators The marital deduction is the strongest of these: an unlimited amount can pass to a U.S. citizen spouse with no estate tax.
Taxable gifts made during the decedent’s lifetime after 1976 are then added back to produce the estate tax base. Progressive rates apply, starting at 18% and reaching 40% on amounts over $1 million.6Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax A unified credit then offsets the tax owed on the first $15 million. Estates at or below that line pay nothing. Estates above it pay 40% on every dollar past the line.
Step-Up in Basis Still Applies
When someone inherits property, its tax basis resets to fair market value on the date of death rather than what the decedent originally paid.7Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent Stock bought decades ago for $50,000 and worth $500,000 at death gets a $500,000 basis in the heir’s hands. Selling right away for $500,000 produces no capital gain. This rule survived the One Big Beautiful Bill Act and remains in place for 2026.
Filing Deadline and Late Penalties
Form 706 is due nine months after the date of death.8eCFR. 26 CFR 20.6075-1 – Returns; Time for Filing Estate Tax Return A death on March 15 puts the return due the following December 15. Executors can get an automatic six-month extension by filing Form 4768 before the original deadline, moving the filing due date out to fifteen months after death.9eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return The extension buys time to file, not time to pay. Any estimated tax is still due at the nine-month mark.
Late penalties compound quickly. The failure-to-file penalty is 5% of the unpaid tax per month, capped at 25%. A separate failure-to-pay penalty of 0.5% per month runs on any balance not paid by the due date.10Internal Revenue Service. Failure to File Penalty On a large estate, that is real money within a few months.
Portability for Married Couples
Portability lets a surviving spouse pick up whatever portion of the first spouse’s $15 million exemption went unused. A first spouse with a $5 million taxable estate leaves $10 million of unused exemption behind, giving the survivor a combined exemption of $25 million. Couples who use no exemption during life reach the full $30 million figure this way.
Portability is not automatic. The deceased spouse’s executor must file Form 706 and affirmatively elect to transfer the unused exclusion, even when no estate tax is owed.11Internal Revenue Service. Frequently Asked Questions on Estate Taxes Families lose exemption constantly by skipping this step because the first estate was under the filing threshold and no one thought a return was needed.
There is a safety valve. For estates not otherwise required to file, Revenue Procedure 2022-32 allows the executor to file a late return to elect portability up to five years after death, with no user fee, as long as the return includes the specific notation referencing the revenue procedure.11Internal Revenue Service. Frequently Asked Questions on Estate Taxes If the estate was above the filing threshold and the executor simply missed the deadline, this simplified method does not apply, and relief has to be sought through a more burdensome IRS process.
Gift Tax Uses the Same Exemption
The federal gift tax and the estate tax share one unified $15 million exemption. Every dollar used during life to shelter taxable gifts reduces the amount left to shelter the estate at death. For 2026, the annual gift tax exclusion is $19,000 per recipient, and gifts within that limit do not touch the lifetime exemption at all.1Internal Revenue Service. What’s New — Estate and Gift Tax A married couple can give $38,000 per recipient per year without dipping into either spouse’s exemption.
Two kinds of gifts fall entirely outside the gift tax system, regardless of amount. Tuition paid directly to an educational institution and medical expenses paid directly to a healthcare provider are unlimited exclusions.12eCFR. 26 CFR 25.2503-6 – Exclusion for Certain Qualified Transfer for Tuition or Medical Expenses “Directly” is doing real work in that sentence. Writing a check to a grandchild who then pays the school does not qualify. The payment must go straight to the school or the provider.
Generation-Skipping Transfers
A separate 40% generation-skipping transfer tax applies when assets pass to someone two or more generations below the transferor, such as a grandchild. Its exemption matches the estate tax exemption at $15 million per person in 2026, and the One Big Beautiful Bill Act made that higher GST exemption permanent as well.13Congress.gov. The Generation-Skipping Transfer Tax (GSTT) Without careful planning, a transfer to a grandchild can trigger both estate tax and GST tax on the same dollars, so allocating the GST exemption is one of the more technical parts of estate planning.
State Estate and Inheritance Taxes
The $15 million federal exemption does not shield an estate from state-level taxes. Twelve states and the District of Columbia impose their own estate taxes, five states impose inheritance taxes, and Maryland imposes both. Iowa eliminated its inheritance tax effective January 1, 2025.
State exemptions run far below the federal one. Oregon’s starts at $1 million, Massachusetts at $2 million, and most others fall in the $2 million to $7.35 million range. An estate worth $4 million can owe nothing to the IRS and still face a substantial state estate tax bill depending on where the decedent lived. Washington raised its top rate to 35% in 2025, the highest in the country.
Inheritance taxes are structured differently. They tax each beneficiary based on the amount received and the relationship to the decedent. Surviving spouses are typically exempt, children usually face lower rates or higher thresholds, and more distant relatives pay more. Rates across the five inheritance-tax states range from 0% to 16%.
State estate or inheritance taxes actually paid are deductible from the gross estate on the federal return.14GovInfo. 26 USC 2058 – State Death Taxes The deduction does not erase the state bill, but it keeps the same dollars from being fully taxed twice.