The federal estate tax exemption is going up again for 2025. Though, the higher IRS inflation-adjusted number may not come as a surprise to most.
However, 2025 will be a pivotal tax year. If the Tax Cuts and Jobs Act (TCJA) is left to expire, as of 2026, the estate exemption amount could revert to a lower base threshold.
In the meantime, a higher exemption for 2025 will save more estates from federal tax, which may save heirs the heartache of a higher tax bill.
2025 estate tax exemption
The federal estate tax doesn’t apply unless you hit a certain exemption amount.
- The exemption amount for people who pass away in 2025 is $13.99 million (up from $13.6 million last year).
- Married couples can expect their exemption to be $27.98 million (up from $27.22 million last year).
Federal estate tax rate
Only a certain percentage of estates will be subject to the federal estate tax. This is because the exemption is high for 2025.
However, estates valued over the tax amount will be taxed at a pretty hefty rate, with those exceeding more than $1 million ($14,990,000 or $28,980,000 combined for married couples) taxed at 40%.
Below is how much heirs can expect to pay based on an estate’s value:
Does the estate tax expire in 2025?
If Congress doesn't act, the estate tax exemption is due to sunset at the end of 2025. At that time, amounts will drop to a base of $5 million (adjusted for inflation) in 2026. However, the exemption is indexed for inflation.
This means that, even if key TCJA provisions expire, the estate tax exemption will adjust yearly for inflation.
Once more, most tax-free gifts made before the lifetime gift and estate tax exemption drops won’t trigger higher tax bills in 2026 and beyond.
State estate taxes
Some states may impose an estate tax of their own (and the exemption amounts aren’t always as generous as the federal estate tax exemption).
For instance, in Massachusetts, the state estate tax exemption is just $2 million and isn’t indexed for inflation.
A few states also impose an inheritance tax, which can leave a tax bill for your heirs on even small amounts of money.
Nebraska, for example, imposes an inheritance tax on adult children when their inheritances exceed $100,000. In Kentucky, nephews and nieces only receive a $1,000 exemption.
