The federal estate tax — what critics call the death tax — applies a 40 percent rate to transfers at death above an exempt amount, and in 2026 that exemption stands at $15 million per person, following the 2025 tax law's permanent increase, per the Internal Revenue Service's annual inflation adjustments. Because the exemption is per person and portable between spouses, a married couple can pass $30 million free of the tax. The result: roughly 0.08 percent of deaths — about one estate in a thousand — generates any federal estate tax liability, per the Tax Policy Center's estimates.
How is the tax actually computed?
The estate files Form 706 within nine months of death, valuing all assets at date-of-death market value: real estate, securities, businesses, and life insurance owned by the deceased. Deductions reduce the taxable estate: debts, funeral and administrative expenses, charitable bequests, and the unlimited marital deduction for assets passing to a surviving citizen spouse. The taxable estate above the exemption is taxed at a graduated rate reaching 40 percent. Lifetime gifts interact with the estate tax through a unified credit: large gifts above the annual exclusion — $19,000 per recipient in 2026 — consume exemption during life and are added back at death, so giving away money early does not escape the base, though it removes post-gift appreciation.
What are the special rules and relief valves?
Two provisions matter most for the estates that actually pay. Qualified family-owned business deductions and Section 2032A special-use valuation let working farms and closely held businesses value land at its agricultural or operating use rather than development-market value. Section 6166 lets an estate that is more than a third business assets pay the tax over up to 14 years at favorable interest. Spousal portability, permanent since 2013, lets a widow's or widower's estate use the deceased spouse's unused exclusion — a key planning tool that requires an estate tax return to elect. At the state level, about a dozen states plus D.C. levy their own estate or inheritance taxes with far lower exemptions — some at $1 million — so mid-wealth estates can owe state tax while owing nothing federal.
- Exemption: $15 million per person in 2026, portable to a surviving spouse.
- Rate: 40 percent above the exemption, after deductions.
- Lifetime gifts: unified with the estate tax; annual exclusion $19,000 per recipient.
- State layer: a dozen-plus states with much lower thresholds.
Why does a tax hitting one in a thousand estates stay political?
Because its base is concentrated and its symbolism is not. Revenue is modest — the estate tax raises tens of billions a year, under 1 percent of federal receipts — but it sits at the center of the redistribution debate: opponents, including the National Federation of Independent Business, frame it as double taxation of already-taxed savings that forces family-business liquidation; supporters, including economists like the Brookings Institution's tax-policy analysts, note effective rates on the largest taxable estates average closer to the teens after planning, and that inherited-wealth concentration has grown. The 2025 law's expansion cut the paying population roughly in half from the prior $13.99 million level, and proposals to repeal outright versus restore lower thresholds remain a durable partisan dividing line in every tax Congress.
LMH News publishes information, not tax or legal advice. Figures reflect IRS and Tax Policy Center publications as of May 2026.
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