Estate Tax 2026
Despite the scary name, federal estate tax hits almost nobody — the 2026 exemption is roughly $15 million per person. The benefit that does touch ordinary families is the step-up in basis, which can erase capital gains taxes for heirs. Here is both.
Exemption
~$15M
Per individual, 2026
Estate tax rate
40%
Above the exemption
Who owes it
<0.1%
Of estates
Step-up basis
Tax-free
Resets to date-of-death value
Who Actually Owes Estate Tax
Federal estate tax applies only to the portion of an estate above the exemption amount, taxed at a top rate of 40%. With the exemption in the millions, fewer than one-tenth of one percent of estates owe anything. If your estate is well under the exemption — as the vast majority are — your heirs pay no federal estate tax at all.
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The 2026 Exemption
The 2026 federal estate tax exemption is roughly $15 million per individual. A married couple can effectively shield about $30 million using portability, which lets a surviving spouse use the deceased spouse's unused exemption. The exemption also applies to gifts made during life, so the estate and gift taxes share one lifetime limit.
Step-Up in Basis: The Big Benefit
When you inherit an asset — stock, a home, a mutual fund — its cost basis resets to its fair market value on the date of death. Suppose your parent bought stock for $20,000 that is worth $200,000 when they pass. You inherit it with a $200,000 basis, so selling it immediately produces no capital gain — the $180,000 of appreciation is effectively erased from the tax system.
This is why inherited assets are often best sold soon after inheritance, before any further appreciation builds a new taxable gain.
State Estate Taxes
A dozen states and D.C. impose their own estate or inheritance taxes, often with much lower thresholds than the federal level — some as low as $1–$2 million. If you live in (or own property in) one of those states, the state tax may be the real concern even when the federal tax does not apply.
Frequently Asked Questions
Do heirs pay income tax on inherited money?
Generally no — an inheritance itself is not taxable income. The step-up in basis also eliminates capital gains tax on pre-death appreciation. Inherited retirement accounts are the exception and have their own distribution rules.
Does the step-up apply to all assets?
Most appreciated assets get the step-up, including stocks, real estate, and mutual funds in taxable accounts. It does not apply to retirement accounts, which follow RMD rules instead.
Is the exemption going to change?
The current high exemption is scheduled to change under various proposals, but for 2026 it remains in the millions. Large estates should review planning with a professional, as the rules are a moving target.
What is portability?
Portability lets a surviving spouse add the deceased spouse's unused estate tax exemption to their own — effectively doubling the amount a couple can pass tax-free. It requires filing an estate tax return to elect it, even if no tax is due.
Sources
- IRS — estate tax exemption and step-up in basis rules.
- IRS Form 706 instructions — estate tax return and portability.
- State revenue departments — state estate and inheritance taxes.
This is informational, not legal or tax advice. Estate planning interacts with state law — consult an estate attorney for large estates.