Federal Estate Tax Rates and Exemptions for 2024
Get a clear overview of the current estate tax landscape. This guide explains how federal tax liability is determined and the role of state-level considerations.
The federal estate tax is imposed on the transfer of a person’s assets to their heirs after death, based on the total value of the property. This tax is different from an inheritance tax, which is paid by those who receive the property. A substantial exemption amount means that most estates in the United States do not have a federal estate tax liability. Only estates with a total value exceeding a high threshold are required to file an estate tax return and potentially pay the tax.
2025 Federal Estate Tax Exemption and Rate
For 2025, the federal estate tax exemption is $13.99 million per individual, which doubles to a combined $27.98 million for a married couple. Any value of an estate that exceeds this exemption is subject to a flat tax rate of 40%.
Separate from the lifetime exemption is the annual gift tax exclusion of $19,000 for 2025. An individual can give up to $19,000 to any number of people during the year without it counting against their lifetime exemption. Gifts above this annual amount reduce the lifetime exemption and require filing a gift tax return, Form 709. The gift and estate tax systems are linked, applying to the total of taxable gifts made during life and the value of the estate at death.
For example, consider an individual who dies in 2025 with a taxable estate of $15.99 million and had made no taxable gifts. The federal estate tax would be calculated on the amount exceeding the exemption. In this case, $2 million of the estate is taxable ($15.99 million – $13.99 million), and applying the 40% tax rate results in a federal estate tax liability of $800,000.
The current high exemption is not permanent. Under the Tax Cuts and Jobs Act of 2017, the exemption is scheduled to sunset at the end of 2025. Without new legislation, the exemption will revert to its pre-2017 level, projected to be between $6 million and $7 million in 2026.
Calculating the Taxable Estate
To determine if an estate owes federal tax, the gross estate’s value must be calculated. This is the total fair market value of all assets the decedent owned or had an interest in at death. A gross estate includes:
- Cash, stocks, bonds, and retirement accounts
- Real estate holdings and business interests
- Personal property such as art, jewelry, and collectibles
- Proceeds from life insurance policies owned by the decedent or payable to the estate
After establishing the gross estate’s value, certain deductions are permitted to determine the taxable estate. Common deductions include:
- Mortgages and other debts owed by the decedent
- Funeral expenses
- Administrative costs, such as legal and accounting fees
Two other deductions are the unlimited marital and charitable deductions. The marital deduction allows for the tax-free transfer of assets to a surviving spouse who is a U.S. citizen, deferring potential estate tax until the surviving spouse’s death. The charitable deduction permits an unlimited deduction for assets left to a qualified charitable organization.
Understanding Portability
Portability allows a surviving spouse to use any unused portion of their deceased spouse’s federal estate tax exemption. This unused amount is known as the Deceased Spousal Unused Exclusion (DSUE). By adding the DSUE to their own exemption, a surviving spouse can increase the amount they can pass on tax-free.
For example, if the first spouse to die in 2025 has a taxable estate of $3.99 million, they use that amount of their $13.99 million exemption. The remaining $10 million is their DSUE amount. Through portability, the surviving spouse can add that $10 million to their own exemption, allowing them to transfer a much larger estate without tax liability.
Securing portability is not automatic. The executor of the first deceased spouse’s estate must file a federal estate tax return, Form 706, to elect to pass the unused exemption to the survivor. This filing is required even if the estate is below the exemption threshold and owes no tax, as failing to do so means the DSUE is permanently lost.
State-Level Estate and Inheritance Taxes
Some states levy their own estate tax, which operates independently of the federal system. The exemption amounts for state estate taxes are generally much lower than the federal exemption, meaning an estate could be exempt from federal tax but still owe state tax.
A smaller group of states imposes an inheritance tax, which is paid by the individuals who receive the assets rather than by the estate. The inheritance tax rate often depends on the heir’s relationship to the decedent, with closer relatives paying lower rates. One state imposes both an estate and an inheritance tax.