Estimate federal and state estate taxes for 2026. $13.61M federal exemption, 40% rate. Includes marital deduction and 13-state estate tax calculations.
The 2026 federal estate tax exemption is $13,610,000 per person ($27,220,000 for married couples using portability). Only the portion of your taxable estate above the exemption is taxed at 40%. Most Americans will never owe federal estate tax. However, 13 states have their own estate taxes with much lower exemptions — Oregon at $1M and Massachusetts at $2M are the most commonly encountered. The gift tax exclusion remains $18,000 per recipient in 2026, allowing annual tax-free gifting to reduce the taxable estate over time.
The federal estate tax applies to the "gross estate" — the total fair market value of all assets owned at death, including real estate, investment accounts, retirement accounts, life insurance proceeds (if you own the policy), business interests, and personal property. From the gross estate, you subtract deductions: debts (mortgage, loans), funeral expenses, estate administration costs, and the unlimited marital deduction for assets passing to a U.S. citizen spouse.
After deductions, you apply any remaining lifetime exemption. The lifetime exemption is a unified credit shared between gifts made during your lifetime (above the annual exclusion) and the estate tax at death. If you made $1,000,000 in taxable gifts during your lifetime, your remaining exemption at death is $12,610,000. Only the taxable estate above the remaining exemption is subject to the 40% estate tax rate.
The estate tax return (Form 706) must be filed within 9 months of death, with a 6-month extension available. The estate must pay any tax owed within 9 months regardless of extension. For illiquid estates (family businesses, real estate), special installment payment rules under IRC Section 6166 allow estate tax to be paid over 14 years in some cases.
Patricia lives in Oregon, is unmarried, and has a gross estate of $3,000,000 (home, investments, retirement accounts) and $500,000 in debts (mortgage). She has made no prior taxable gifts.
Patricia owes no federal estate tax, but Oregon imposes an estimated $135,000 state estate tax. Oregon's low $1,000,000 exemption means even middle-class estates with a home in a high-value real estate market can be subject to Oregon estate tax. Planning strategies like irrevocable trusts, annual gifting ($18,000/recipient), or relocating to a no-estate-tax state can help reduce this liability.
State estate taxes catch middle-class estates
While the federal exemption exceeds $13M, state estate tax exemptions in Oregon ($1M), Massachusetts ($2M), and Rhode Island ($1.77M) capture many middle-class estates, especially those with real estate in high-cost markets. A $1.5M home in Massachusetts plus a 401(k) can create a state estate tax bill even though the federal government owes nothing. State estate tax planning requires separate strategies from federal planning.
Portability election must be made on Form 706
When a married person dies with a remaining exemption below $13,610,000, the unused portion transfers to the surviving spouse — but only if the estate files Form 706 and makes the portability election within 9 months (or 15 months with extension). Many non-taxable estates skip this filing thinking it is unnecessary, losing the portability benefit. Filing Form 706 purely to elect portability can save significant estate tax on the second death.
Annual gifting reduces the taxable estate over time
Systematic use of the $18,000 annual gift exclusion (2026) reduces your taxable estate without using the lifetime exemption. A couple with 4 adult children and 8 grandchildren can transfer $18,000 × 12 recipients × 2 spouses = $432,000 per year completely free of gift and estate tax. Over 10 years, that is $4.32M removed from the taxable estate, potentially avoiding significant state estate tax in low-exemption states like Oregon or Massachusetts.
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The federal estate tax exemption for 2026 is $13,610,000 per individual. Married couples can combine exemptions through portability, giving them a combined $27,220,000 threshold. Estates below this amount owe zero federal estate tax. The exemption is indexed for inflation under the Tax Cuts and Jobs Act. Note: The OBBBA (One Big Beautiful Bill Act) extends the current high exemption level. Without Congressional action, the exemption was scheduled to sunset to approximately $7 million. Monitor legislative developments as laws can change.
The federal estate tax applies at a 40% flat rate on the taxable estate amount that exceeds the exemption. For example, if your taxable estate is $15,000,000 and the exemption is $13,610,000, only $1,390,000 is subject to the 40% rate, resulting in $556,000 in federal estate tax. There is technically a graduated estate tax rate schedule (18%–40%) that applies, but the effective rate is close to 40% for large estates because the lower rates apply only to amounts already sheltered by the exemption.
Thirteen states and Washington D.C. impose their own estate tax with lower exemptions than the federal threshold. States with estate taxes include Oregon ($1M exemption, up to 16%), Massachusetts ($2M), Rhode Island ($1.77M), Washington state ($2.19M), Illinois ($4M), Minnesota ($3M), Maryland ($5M), New York ($6.94M), Vermont ($5M), Connecticut ($13.61M), Maine ($6.8M), Hawaii ($5.49M), and D.C. ($4.69M). Even if your estate owes no federal tax, you may owe state estate tax if you live in one of these states.
The unlimited marital deduction allows a married person to transfer any amount of assets to a U.S. citizen spouse free of estate tax. Assets transferred to a surviving spouse are completely excluded from the taxable estate. This defers — but does not eliminate — estate tax. When the surviving spouse later dies, their estate will be taxed on the combined assets above the available exemption. Couples with significant estates should work with estate planning attorneys to structure wills and trusts to maximize both spouses' exemptions, not just defer tax to the surviving spouse.
The annual gift tax exclusion for 2026 is $18,000 per recipient. You can give $18,000 to as many individuals as you wish each year without using your lifetime exemption. Married couples can combine and give $36,000 per recipient annually. Over time, systematic annual gifting reduces your taxable estate. Additionally, direct payments for tuition and medical expenses (paid directly to the institution) are excluded from gift tax entirely with no dollar limit. Irrevocable trusts (GRATs, SLATs, ILITs) offer more sophisticated estate reduction strategies and should be set up with a qualified estate planning attorney.