Federal Estate Taxes

The federal estate tax affects only the richest families in America. For deaths in 2023, only estates worth more than $12.92 million will owe estate taxes. And married couples can share their exemptions—so between them, they can leave up to $25.84 million with no concern about estate taxes.

Note that the Tax Cuts and Jobs Act of 2017 doubled the threshold amount for paying federal taxes. This amount is scheduled to return to its previous amount (but adjusted for inflation) at the end of 2025. In other words, unless Congress takes action to change the exemption, at the close of 2025, the estate tax exemption will effectively halve.

Amount Exempt From Federal Estate Tax

Every person who dies in 2023 may leave or give away up to $12.92 million without owing any estate tax. As a practical matter, that means that under the current rules, about 99.9% of all estates will NOT owe any federal gift/estate tax. The exemption amount will rise with inflation each year, until 2026, when the exemption is scheduled to be lowered to half of what it was.

Here are the federal estate tax exemption amounts in recent years:

‘Portability' Allows Spouses to Combine Exemptions

One popular feature of the current estate tax law is that spouses can combine their estate tax exemptions, effectively letting married couples give away or leave almost $25.84 million without owing tax. The law makes this feature, called "portability" by tax experts, permanent.

Here's how it works: If the first spouse to die doesn't use up his or her individual gift/estate tax exemption, the surviving spouse can use what's left. That gives the couple a total exemption of twice the individual exemption amount. They can share that total exemption amount in the way that provides the greatest tax benefit. For example, if each member of a couple has $10 million in assets, and the first one to die leaves everything to the other, no estate tax is owed because property left to a spouse is tax-free. When the survivor dies and leaves $20 million ($10 million plus the $10 million inherited from the other spouse) to their children, no estate tax will be due, even though the estate is over the exemption amount, because the estate can use some of the first spouse's unused exemption.

To take advantage of the portability rule, an estate tax return must be filed to claim portability—even if no tax will be due. As commentators have pointed out, this means the IRS must process returns that don't provide any tax revenue, and taxpayers must pay experts to prepare these very complicated tax returns.

In 2023, the IRS extended the deadline for claiming portability to five years after the first spouse's death.

Gift and Estate Tax Rates

On very large estates subject to the tax, the gift/estate rate is now 40%. (Historically speaking, this rate is relatively low.)

This rate also applies to the generation-skipping transfer tax. That is a federal tax that is imposed on large transfers that skip a generation (for example, a gift from a grandparent to a grandchild) in an attempt to avoid estate tax.

Learn more about federal estate tax, state estate tax, and inheritance tax at Nolo's Estate and Inheritance Tax center.