Estate Tax
A federal tax on the transfer of property at death. The taxable estate is the fair market value of all assets at death minus allowable deductions. The 2026 exemption is $15,000,000 (OBBBA permanent) — up from $13,990,000 in 2025.
The federal estate tax applies to the taxable estate of a deceased US citizen or resident when assets are transferred to heirs. The taxable estate is the gross estate (fair market value of all assets at date of death) reduced by allowable deductions such as debts, funeral expenses, charitable bequests, and the unlimited marital deduction for assets passing to a surviving US citizen spouse.
The estate tax exemption is $15,000,000 per individual for 2026 (OBBBA made the $15M base permanent starting 2026, indexed for inflation thereafter), $13,990,000 for 2025, and $13,610,000 for 2024. Only the amount above this threshold is subject to estate tax. The top estate tax rate is 40%. A married couple can effectively double the exemption — up to approximately $30,000,000 in 2026 — through portability, where the surviving spouse can elect to use the deceased spouse's unused exemption amount (DSUE) by filing an estate tax return.
Before OBBBA, the TCJA-elevated exemption was set to sunset at the end of 2025 and revert to roughly $7,000,000 (adjusted for inflation); that sunset no longer applies since OBBBA made the higher level permanent. Estates subject to tax must file Form 706 within nine months of death, though a six-month extension is available. Assets inherited from a decedent generally receive a stepped-up cost basis equal to fair market value at death, which can significantly reduce capital gains taxes on inherited investments.
How it works
The federal estate tax applies to a deceased person's taxable estate — the fair market value of everything they owned at death, reduced by debts, funeral costs, charitable bequests, and the unlimited marital deduction for property passing to a surviving US-citizen spouse. Only the amount of the taxable estate above the exemption is actually taxed, at a top rate of 40%.
The exemption is $15,000,000 per individual for 2026 (OBBBA made that base level permanent starting in 2026, indexed for inflation after that), up from $13,990,000 in 2025 and $13,610,000 in 2024. A married couple can effectively double that shelter — to roughly $30,000,000 in 2026 — through portability, where the surviving spouse elects to use whatever exemption the first spouse to die didn't use, by filing an estate tax return (Form 706) even if none is otherwise required.
Estates that owe tax, or that want to elect portability, must file Form 706 within nine months of death, with a six-month extension available. Before OBBBA, the elevated TCJA exemption was scheduled to roughly halve at the end of 2025; that sunset no longer applies because OBBBA made the higher $15,000,000 level permanent. Assets inherited from a decedent generally get a stepped-up basis to fair market value at death, which is a separate benefit from the exemption itself and can substantially reduce capital gains tax if the heir later sells.
Example: estate tax above the 2026 exemption
Someone dies in 2026 with a taxable estate of $16,500,000, after debts, funeral costs, and the marital deduction have already been subtracted. The 2026 exemption shelters the first $15,000,000, leaving $1,500,000 exposed to tax.
At the top 40% estate tax rate, that $1,500,000 generates $600,000 of federal estate tax. Had the surviving spouse instead elected portability from an earlier deceased spouse's unused exemption, some or all of that $1,500,000 could have been sheltered as well.
Frequently asked questions
What is the federal estate tax exemption for 2026?
How does portability let a married couple shelter more from estate tax?
Does an inherited house get a stepped-up basis for capital gains purposes?
Related Terms
Gift Tax
A federal tax on transfers of money or property to another person when you receive nothing (or less than full value) in return. The donor — not the recipient — is responsible for paying the gift tax.
Unified Credit
A lifetime tax credit that offsets gift and estate taxes. It shelters $15,000,000 in cumulative taxable gifts and estate value from federal transfer taxes in 2026 (OBBBA permanent), up from $13,990,000 in 2025.
Annual Gift Tax Exclusion
The amount you can give to any individual each year without gift tax consequences or filing requirements. For 2025, the annual exclusion is $19,000 per recipient.
Cost Basis
The original purchase price of an asset (plus adjustments like commissions and reinvested dividends), used to calculate capital gain or loss when you sell.