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.
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.