Wealthier Americans need to keep an eye on the federal estate tax exemption amount, which is an important factor in any estate plan. However, the exemption amount is adjusted for inflation each year, so it usually goes up from one year to the next (at least since 2011).
That’s a good thing for taxpayers, though. If the estate tax exemption wasn’t adjusted annually, more and more people would end up having to pay the federal estate tax when they die, even if their property’s value didn’t increase during the year. (Technically, your
estate pays any estate tax owed after your death, but that’s not how most people think of it.)
So, what’s the federal estate tax exemption for 2024? Keep reading to find out, and to see what it means.
Related: Federal Tax Brackets and Rates for 2024
How Does the Federal Estate Tax Exemption Work?
Before I give you the 2024 federal estate tax exemption amount, I want to make sure you understand how it impacts the federal estate tax. So, here’s a quick and general review of the basics.
YATI Tip: The federal estate tax “exemption” is sometimes referred to as the estate tax “exclusion.”
When you die, the fair market value of all the property you own (including certain interests in a business or property) is added together to determine your “gross estate.”
If your gross estate, plus the value of any taxable gifts made since 1977, exceeds the estate tax exemption for the year of your death, then your estate typically must file a federal estate tax return on
Form 706 and pay any estate tax due. (The executor or other representative of your estate files the return and pays the tax on the estate’s behalf.)
After various deductions and credits are claimed, the remaining “taxable estate” is subject to tax at rates ranging from 18% to 40%, as shown in the table below. Those are pretty high rates as federal tax rates go, so you want to avoid the federal estate tax if at all possible. (Your heirs will thank you, too!)
So, for example, if your taxable estate is $625,000 after all deductions and credits are taken into account, your estate will owe $202,050 of federal estate tax.
(($625,000 – $500,000) x .37) + $155,800 = $202,050
However, if the combined total of your gross estate and taxable gifts before your death is less than the estate tax exemption for the year you die, no estate tax return is required and no estate tax will be due.
Related: How to Give Stocks as a Gift in a Tax-Efficient Way
Federal Estate Tax Exemption for 2024
The federal estate tax exemption for 2024 is $13.61 million. That’s a $690,000 jump (or 5.3% increase) from the $12.92 million exemption for people who die in 2023.
As a result, if you pass away in 2024 with an estate worth less than $13.61 million, your estate won’t have to pay any federal estate tax (assuming you previously didn’t make taxable gifts of more than $13.61 million before you died).
History of Federal Estate Tax Exemption
The 2024 federal estate tax exemption of $13.61 million is the largest ever. But that’s no surprise, since inflation has been high of late.
In addition, if you look at the federal estate tax exemption’s history, as shown in the table below, you’ll see a few big jumps from one year to the next. Those steep increases are the result of tax legislation passed by Congress.
The most recent sharp increase kicked in for people who died in 2018. That expansion came from the Tax Cuts and Jobs Act (TCJA) of 2017, which more than doubled the federal estate tax exemption.
However, the exemption bump enacted by the TCJA is only temporary. In 2026, the estate tax exemption is scheduled to shrink back down to its pre-2018 size, as adjusted for inflation. We can’t say exactly what the exemption amount will be in 2026, because we don’t know what the inflation rates will be between now and then, but estimates generally range from about $6 million to $7 million.
Related: Standard Deduction Amounts for 2024
State Estate Taxes
Don’t forget about
state estate taxes. According to the
Tax Foundation, the following jurisdictions impose their own estate tax (with 2023 exemption amounts).
So, even though federal estate taxes aren’t due when you die, your estate might get a state estate tax bill.
In addition, the following states impose an inheritance tax (yes, Maryland has
both an estate tax and an inheritance tax):
- Iowa
- Kentucky
- Maryland
- Nebraska
- New Jersey
- Pennsylvania
Inheritance taxes are different in that they’re paid by your heirs on the property they inherit from you. In many cases, close family members (e.g., spouse, child, etc.) are exempt from the inheritance tax or pay a lower rate.
Check with the
state tax agency where you live for more information about state estate or inheritance taxes that might apply.
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