The federal estate tax applies to a small fraction of American estates — roughly 0.1 percent of deaths each year — but for families it does affect, the financial stakes are enormous. The 2025 exemption of $13.99 million per individual is the highest in history, the result of inflation adjustments layered on top of the 2017 Tax Cuts and Jobs Act doubling. But that generous exemption is scheduled to sunset on January 1, 2026, and without congressional action it will fall by roughly half. For high-net-worth families, 2025 represents a critical planning window, and even modest estates need to understand how portability, Form 706, and the lifetime gift exemption interact.
The 2025 exemption amounts
For deaths occurring in 2025, the federal estate tax exemption is $13.99 million per individual under IRC § 2010(c)(3), as inflation-adjusted by the IRS revenue procedure published in October 2024. A married couple can shelter up to $27.98 million from federal estate tax through a combination of lifetime gifting, the marital deduction, and the portability election. The exemption is per-person, not per-estate: each spouse has their own $13.99 million to use either during life (as the lifetime gift exemption) or at death (as the estate tax exemption), because the two systems share a single unified credit.
By comparison, the 2024 exemption was $13.61 million per individual, the 2023 exemption was $12.92 million, and the 2017 pre-TCJA exemption was $5.49 million. The exemption has more than doubled in eight years — the largest increase driven by both statutory change (the TCJA doubling) and historically high inflation in 2022 and 2023. The annual inflation adjustment is calculated using the Chained Consumer Price Index (C-CPI-U) and rounded to the nearest $10,000.
The 40% rate and how it is calculated
The federal estate tax is a flat 40 percent on the value of the taxable estate above the exemption. The taxable estate is the gross estate (defined under IRC § 2031 to include all property the decedent owned or controlled at death, including certain lifetime transfers) minus allowable deductions: funeral expenses, administrative costs, debts, casualty losses, charitable deductions under § 2055, and the marital deduction under § 2056.
The calculation itself is mechanical. The executor starts with the gross estate valued at fair market value on the date of death (or, alternatively, six months later under the alternate valuation date of § 2032). Deductions are subtracted to arrive at the taxable estate. Lifetime taxable gifts made after 1976 are added back. The tentative tax is then computed using a progressive rate table in § 2001(c), which peaks at 40% on amounts above $1 million. Finally, the unified credit (currently $5,592,200 for 2025, equivalent to the tax on $13.99 million) is subtracted, leaving the actual tax owed.
Because the rate table is graduated below $1 million, an estate of exactly $13.99 million pays nothing — the unified credit fully offsets the tax. An estate of $15 million pays 40% on the $1.01 million above the exemption, or about $404,000. The marginal rate above the exemption is a clean 40%, with none of the rate creep found in the income tax brackets.
Portability and the DSUE election
Portability, enacted in 2010 and made permanent by the American Taxpayer Relief Act of 2012, allows a surviving spouse to use any portion of the deceased spouse's unused exemption (DSUE) — provided the executor of the first spouse's estate makes a portability election on a timely filed Form 706. With portability, a married couple can effectively combine their two exemptions without setting up credit-shelter trusts or bypass trusts, which were the standard tool before 2010.
The portability election is not automatic. The executor must file Form 706 within the standard nine-month deadline (or within the extended 15-month deadline if an extension is granted) and must affirmatively elect portability by checking the appropriate box. If the executor fails to file, the surviving spouse loses the deceased spouse's unused exemption — forever, in most cases. The IRS has issued several revenue procedures allowing late portability elections in certain circumstances, but only for estates that are otherwise below the filing threshold and only if the surviving spouse acts within five years of the decedent's death.
Even when an estate is well below the filing threshold, executors should file Form 706 solely to preserve portability. The cost of preparing the return — typically $3,000 to $7,500 — is modest insurance against the surviving spouse's estate growing significantly or against the exemption dropping in 2026. For estates far above the threshold, portability may be unnecessary because both spouses' estates will owe tax regardless, but for the broad middle of high-net-worth couples, portability is the single most valuable federal estate tax planning tool.
Form 706: filing and deadlines
United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706, is the document used to report the estate's value, claim deductions, elect portability, and compute any tax owed. The return is due nine months after the decedent's date of death. A six-month extension is available by filing Form 4768 before the original due date — the extension is automatic upon request and does not require a showing of cause, but it extends only the filing deadline, not the payment deadline. Tax must still be paid by the nine-month mark to avoid interest.
A Form 706 must be filed if the decedent's gross estate exceeds the filing threshold ($13.99 million for 2025 deaths), or if the decedent made lifetime taxable gifts exceeding the annual exclusion and the executor wishes to elect portability. The return is detailed and document-intensive: it requires valuations of all real property, business interests, and securities; schedules for lifetime gifts, jointly held property, powers of appointment, annuities, and certain trusts; and detailed substantiation for any deductions claimed. Average preparation time runs 80 to 120 hours for a moderately complex estate.
The 2026 sunset and what it means
The single most important feature of the 2025 federal estate tax landscape is the scheduled sunset of the TCJA's exemption doubling. Under the sunset provisions of the Tax Cuts and Jobs Act of 2017, the exemption reverts to its pre-TCJA base of $5 million (adjusted for inflation) on January 1, 2026. The IRS confirmed in Treasury Regulation § 20.2010-1(c) that gifts made before the sunset using the higher exemption will not be "clawed back" — meaning a taxpayer who gifts $13 million in 2025 will not owe gift tax in 2026 even though the exemption will by then be only about $7 million.
Practically, the sunset creates a strong incentive to make large completed gifts in 2025, especially of appreciating assets. A $10 million gift of stock in 2025 removes both the $10 million from the estate and all future appreciation. If the same gift is made in 2026 after the exemption drops, the donor would owe 40% on the amount above the new exemption — roughly $1.2 million in tax on a $10 million gift. Without congressional action — which is plausible but uncertain — the sunset will occur automatically.
Lifetime gifts and the unified credit
The federal gift tax and estate tax share a single unified credit, meaning gifts made during life reduce the exemption available at death dollar-for-dollar. The 2025 annual gift exclusion is $19,000 per recipient under IRC § 2503(b), indexed annually for inflation. Gifts up to that amount to any number of recipients do not count against the lifetime exemption and require no return. Gifts above the annual exclusion require filing Form 709 (United States Gift Tax Return) by April 15 of the following year, and the excess counts against the $13.99 million lifetime exemption.
Tuition paid directly to an educational institution and medical expenses paid directly to a healthcare provider under IRC § 2503(e) are excluded from gift tax without limit and do not count against the annual exclusion or the lifetime exemption. This exclusion is one of the most underused estate-planning provisions: a grandparent paying $40,000 per year of a grandchild's private college tuition can shift that amount out of their estate annually with zero tax cost, as long as the check goes directly to the school and not to the student or the parents.
For most families, the federal estate tax is a non-issue — the exemption is so high that fewer than 1 in 1,000 deaths triggers a filing requirement. But for business owners, real estate investors, and families with concentrated stock positions, the 2025 planning window is significant. For a deeper look at state-level death taxes that can apply to much smaller estates, see our inheritance tax by state guide, or estimate probate costs separately using our probate fee calculator.
Last reviewed June 17, 2026. This article is informational and does not constitute legal, tax, or financial advice. Consult a qualified professional for guidance specific to your situation.