Federal estate tax exemption for 2026

The exemption is shared with the gift tax. Taxable gifts made during life, the part above the $19,000 annual exclusion per recipient, are added back and reduce what is left for the estate.

The gross estate is everything the person owned or had an interest in at death, at fair market value: cash, investments, real estate, business interests, retirement accounts and life insurance they owned, among others. Debts, funeral and administration costs, property left to a surviving spouse and gifts to charity are subtracted.

Tax is figured on the rest plus lifetime taxable gifts, and a credit covers the first $15 million. Above that the rate is effectively 40%.

Example: an unmarried person dies in 2026 with a $20 million taxable estate and no prior taxable gifts. The tentative tax on $20 million is $7,945,800; the 2026 credit of $5,945,800 leaves $2,000,000, or 40% of the $5 million above the exemption.

Property left to a surviving spouse who is a U.S. citizen passes free of estate tax. When the first spouse dies, any exemption they did not use, the deceased spousal unused exclusion, can be passed to the survivor and added to their own.

This is not automatic. The executor must file Form 706 to elect it, even when the estate is far below the filing threshold and owes nothing. Under Rev. Proc. 2022-32, an estate that was not otherwise required to file can still make the election up to five years after the death.

Form 706 is required for a 2026 death if the gross estate, plus adjusted taxable gifts, is more than $15 million, or if the executor elects portability. It is due nine months after the date of death. Form 4768 gives an automatic six-month extension to file, but any tax is still due at nine months.

There is no federal inheritance tax; any estate tax is paid by the estate before property is distributed. What you inherit is not income to you.

Inherited property takes a basis equal to its fair market value at the date of death. If you sell a house or stock soon after inheriting it, there is usually little or no capital gain, however much the person who died paid for it. Inherited traditional IRAs and 401(k)s are the exception: withdrawals are taxed as income to you.

Illinois taxes estates well below the federal level. The Illinois Attorney General gives the exclusion amount as $4 million, and it works as a threshold, not a credit: if the gross estate plus adjusted taxable gifts is over $4 million, an Illinois Form 700 must be filed, even when no federal return is due. Illinois has no separate gift tax and no inheritance tax.

Bills to raise the Illinois exclusion to match the federal amount have been introduced in the General Assembly. Check the current figure with the Attorney General before relying on it.