The federal estate tax exemption went up again for 2025. Though, the higher IRS inflation-adjusted number may not come as a surprise to most.
However, 2025 will be a pivotal tax year. If the Tax Cuts and Jobs Act (TCJA) were left to expire, as of 2026, the estate exemption amount could revert to a lower base threshold. But with a Republican-led Congress likely to support many TCJA provisions, the high exemption may not be the last of its kind.
In the meantime, a higher exemption for 2025 will save more estates from federal tax, which may save heirs the heartache of a higher tax bill.
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Federal estate tax exemption in 2025
The federal estate tax doesn’t apply unless you hit a certain exemption amount.
- The exemption amount for people who pass away in 2025 is $13.99 million (up from $13.6 million last year).
- Married couples can expect their exemption to be $27.98 million (up from $27.22 million last year).
Federal estate tax rate
Only a certain percentage of estates will be subject to the federal estate tax. This is because the exemption is high for 2025.
However, estates valued over the tax amount will be taxed at a pretty hefty rate, with those exceeding more than $1 million ($14,990,000 or $28,980,000 combined for married couples) taxed at 40%.
Below is how much heirs can expect to pay based on an estate’s value:
Rate | Taxable Amount (Value of Estate Exceeding Exemption) |
18% | $0 to $10,000 |
20% | $10,001 to $20,000 |
22% | $20,001 to $40,000 |
24% | $40,001 to $60,000 |
26% | $60,001 to $80,000 |
28% | $80,001 to $100,000 |
30% | $100,001 to $150,000 |
32% | $150,001 to $250,000 |
34% | $250,001 to $500,000 |
37% | $500,001 to $750,000 |
39% | $750,001 to $1 million |
40% | More than $1 million |
State estate taxes
Some states may impose an estate tax of their own (and the exemption amounts aren’t always as generous as the federal estate tax exemption).
For instance, in Massachusetts, the state estate tax exemption is just $2 million and isn’t indexed for inflation.
A few states also impose an inheritance tax, which can leave a tax bill for your heirs on even small amounts of money.
Nebraska, for example, imposes an inheritance tax on adult children when their inheritances exceed $100,000. In Kentucky, nephews and nieces only receive a $1,000 exemption.
Estate tax exemption sunset in 2026
If Congress doesn't act, the federal estate tax exemption will sunset at the end of 2025. At that time, the exemption will drop to a base of $5 million (adjusted for inflation) in 2026. However, the exemption is indexed for inflation.
This means that, even if key TCJA provisions expire, the estate tax exemption will adjust yearly for inflation.
Once more, most tax-free gifts made before the lifetime gift and estate tax exemption drops won’t trigger higher tax bills in 2026 and beyond.
Period | Exemption Amount |
2018 | $11,180,000 |
2019 | $11,400,000 |
2020 | $11,580,000 |
2021 | $11,700,000 |
2022 | $12,060,000 |
2023 | $12,920,000 |
2024 | $13,610,000 |
2025 | $13,990,000 |
The future of the estate tax sunset
With Donald Trump's election and a Republican-led Congress, many provisions of the TCJA will likely continue for some time.
A major tax reform policy is being undertaken in the House and Senate. The $4.5 trillion reconciliation bill could provide for a full extension, or extend or raise only certain parts, of the TCJA. However, extending the "Trump tax cuts" could come at a price; earlier in the year, a budget agenda was released by the House Committee on Ways and Means that proposed ending the federal estate tax while slashing other tax benefits, like the interest deduction for student loans. The estimated cost to eliminate estate taxes in the proposed agenda was $370 billion over ten years.
According to Politico, National Economic Council Director, Kevin Hassett, has said, "The hope is that the tax bill will be passed by the summer, early summer." Stay tuned for further developments.
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