New tax law increases big beyond-the-grave tax break for the wealthy
The amount has increased greatly over the past quarter century. Americans who die in 2025 may leave behind tax free to their heirs up to $13.99 million.
That exemption level had been set to expire after this year and snap back to a little more than $7 million per person.
But that won't happen. Instead, starting in 2026, the exemption level will increase by roughly 7.2% to $15 million and adjust for inflation every year thereafter.
That's courtesy of the One Big Beautiful Act that Republicans pushed through in time for President Donald Trump to sign it into law on his self-appointed deadline of July 4.
Keep in mind, while not new, the exemption level is effectively doubled for married couples. That's because any unused exemption from the first spouse who dies can be passed to the surviving spouse, and the decedent's estate can pass to the widow or widower tax free. Then, when they die, they will get up to two times the individual exemption level. So that comes to $27.98 million tax free for couples this year and $30 million next year.
(It's also worth noting that the estate tax exemption level is the same as the lifetime gift tax exemption level. That means essentially how much you're allowed to exempt from estate taxes at death is reduced by how much you gave away in gifts while you were alive.)
The OBBA did not change the federal tax rates imposed on the taxable portion of estates. They're set on a graduated scale, from 18% to 40% with the initial portion above the exemption level taxed at 18%, the next portion at 20% and so on up to 40%, which is well below the 55% top rate that applied in 2001.
Raising the exemption level to $15 million a person is likely to further reduce the already low share of estates subject to the estate tax. In 2001, roughly 2.1% of Americans who died left behind taxable estates — and that number dropped to just 0.07% in 2019, according to the Congressional Research Service. That share was expected to rise to 0.2% in 2026, had the exemption level snapped back to roughly $7 million as was scheduled.
Despite those very tiny percentages, the Joint Committee on Taxation estimates that the OBBA change will reduce federal revenue by nearly $212 billion over the next decade relative to what the law had called for before OBBA was enacted.
Even if your estate or that of a loved one falls well below the federal exemption level, the estate may still be considered taxable in the state where a decedent was living when they died.
As of this year, 12 states and the District of Columbia have an estate tax, according to the Tax Foundation. The states are: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.
The exemption levels and the tax rates imposed vary from state to state. In Massachusetts, for example, the exemption level is $2 million, and depending how much more an estate is worth above that threshold, it may be subject to a tax rate between 0.8% and 16%. In Washington, up to $3 million may be exempt from the state estate tax but rates run as high as 35% on the taxable portion of an estate.
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