A Guide to the Federal Estate Tax for 2025

If you have assets you’d like to eventually pass on, it’s important to understand how the estate tax may impact your financial plan. Incurring this tax can shrink the size of your inheritable estate. Most estates won’t trigger the federal estate tax¹, as it only applies to estates worth more than $13.99 million in 2025, minus any applicable gifts. However, it’s helpful to familiarize yourself with the basics of the estate tax if there’s a possibility you might owe it.

Do you have questions about the estate tax or estate planning in general? Consider speaking with a financial advisor today.

What Is the Federal Estate Tax?

The estate tax is levied by the government on estates when you die and pass on your assets to heirs. If your estate has a high enough value after you pass away, then you’ll have to pay estate taxes on anything you’re looking to bequeath. This could include cash, real estate, retirement accounts or a range of other assets.

For 2025, the federal estate tax threshold is $13.99 million for individuals, which means married couples don’t have to pay estate tax if their estate is worth $27.98 million or less. For 2024, the threshold was $13.61 million for individuals and $27.22 million for married couples.

Those limits reflect changes introduced by the 2017 Tax Cuts and Jobs Act (TCJA). The higher limits were set to expire at the end of 2025, but the One Big Beautiful Bill Act (OBBBA) made the increases permanent. The Act permanently raises the limit to $15 million starting in 2026, doubling to $30 million for married couples, indexed for inflation.

Federal Estate Tax Rates for 2025

To make things simple, if someone passes away in 2025 and their estate is worth $13.99 million or less, they don’t need to worry about the federal estate tax. However, any estates worth more than that are taxed only on the amount that surpasses the $13.99 million threshold. For all but the first federal estate tax tier, you pay both a base tax charge and an additional marginal rate. Federal estate tax rates max out at 40% for amounts higher than $1 million.

Federal Estate Tax Rates

For example, let’s say your estate is valued at $14.43 million in 2025. That means your total taxable estate is $440,000, as it’s worth that much more than the $13.99 million threshold. At the appropriate tax tier, you’ll pay the base rate of $70,800, plus an additional $64,600 ($190,000 taxed at 34%). That comes out to a total estate tax of $135,400.

The OBBBA makes no mention of adjustments to how tax rates are applied to different asset tiers, only to the level of assets exempted from the tax. If you anticipate owing estate tax, even with the higher exemption limits that are set to begin in 2026, you would need to consider where you would fall in the above range. 

Which States Levy an Estate Tax?

If you die as a resident of certain parts of the country, your estate may also be subject to a state tax. As of 2025, Washington, Oregon, Minnesota, Illinois, Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, Hawaii and the District of Columbia all levy estate taxes. That means that the estates of people who live in these states may face estate taxes at both the federal and state levels.

The aforementioned states’ estate tax thresholds range from $1 million in Oregon to $13.99 million in Connecticut. Rates vary, with some states using a progressive system, similar to the way federal estate tax rates work. 

The OBBBA does not affect state estate tax thresholds or rates. However, states may use federal exemption limits as a guideline when determining how much to exempt. You may want to talk to a financial advisor or estate planning attorney about the implications of having to pay estate tax at the federal and state levels if you think that situation may apply to you.

Understanding the Estate Tax Exemption

In 2011, estates and lifetime gifts had a combined exemption of $5 million in
asset value, indexed for inflation. This exemption was made permanent in 2013² and was
$5.49 million for an individual or twice that for a couple for 2017.

However, the tax plan that President Trump signed in December 2017 increased that exemption to $11.18 million for the tax year 2018. Exemption limits rose to:

• $11.4 million for 2019
• $11.58 million for 2020
• $11.7 million for 2021
• $12.06 million for 2022
• $12.92 million for 2023
• $13.61 million for 2024 

For tax year 2025, the exemption is $13.99 million and will rise to $15 million beginning in 2026 under the OBBBA If your estate is in the ballpark of the estate tax limits and you want to leave the maximum amount to your heirs, you’ll want to do some estate tax planning.

If you’re in charge of paying estate taxes for a deceased loved one, you might want to enlist a tax accountant and an estate lawyer to help you shoulder that burden. In addition to estate taxes, you may need to file separate income taxes for the estate if their estate is generating income above IRS limits. To file a U.S. estate tax return, you’ll need a tax ID number for the estate. An estate’s tax ID number is called an “employer identification number” or EIN. You can apply for a number online, by mail or by fax.

If you want to limit your exposure to the estate tax you may consider strategically giving away a portion of your wealth while you’re still alive. For instance, you can make a charitable donation and deduct it at tax time, or give it to the heirs whose inheritance would otherwise take a hit from estate taxes. You’ll need to be aware of the gift tax, however. 

• Gift tax is a tax you pay when you give money or assets to someone else, above a certain limit, with no expectation of receiving anything of equal value in return.
• For 2025, every single filer or member of a married couple can give up to $19,000 as a gift.That limit applies to as many people as you want, and married couples can split gifts, doubling the limit to $38,000.
• If an individual gift exceeds the $19,000 limit, the excess amount will count against your lifetime gift/estate tax exemption. 
• Once that lifetime exemption limit is exhausted, you’ll pay federal gift taxes on the overage. Like the estate tax, the gift tax ranges from 40% to 18%.

Then there’s also the estate tax deduction, which is the IRS’ way of preventing double taxation. Sometimes, the estate of a deceased will still generate income. This could be for a property sale that hasn’t gone through by the time the owner dies. That kind of income is known as Income in Respect of Decedent (IRD).

A large estate might face double taxation at the federal level – the regular estate tax followed by the income tax on the IRD. The estate tax deduction lets you deduct the portion of the estate tax paid for the IRD from the income tax on that IRD. This ensures that the same assets aren’t taxed twice.

The History of the Estate Tax

Estate taxes in the U.S. are tied to the history of war³. The first tax resembling an estate tax was levied in the 1790s to help raise funds for fighting an undeclared naval war with the new French Republic. Rather than taxing an estate’s assets directly, it was a tax on wills and probate forms. This tax was only temporary, though.

In the 1860s, the Civil War prompted a new estate tax, again to raise money for the war effort. The tax eventually lapsed again, though it was officially revived in the 1890s. The goals of this estate tax were to tax some of the money being made by wealthy industrialists who were getting off easy under the old tax system and to raise money for the Spanish-American War.

What we now think of as federal estate taxes became law in 1916. Again, World War I created an urgent need for more government revenue. Since then, estate taxes have been a source of political controversy. This is despite the small percentage of households affected by what opponents of estate taxes call “death taxes.”

Estate Tax vs. Inheritance Tax

Estate taxes are taxes on the privilege of transferring property to your heirs. It’s the estate of the deceased that is liable for the tax.

An inheritance tax, by contrast, is a tax on the privilege of receiving property from a deceased benefactor. It is the (living) heir who pays inheritance tax, not the estate of the deceased.

Inheritance taxes, though, are not levied at the federal level and only states will continue to charge inheritance taxes in 2025: Nebraska, Kentucky, Pennsylvania, Maryland and New Jersey. Maryland is the only state in the country that levies both an estate tax and an inheritance tax. Iowa previously levied an inheritance tax, but repealed it gradually between 2021 and 2024.

Spouses are exempt from paying the inheritance tax in all six of these states, and some states extend that exemption, at least partially, to all immediate relatives.

Bottom Line

Whether you consider the $13.99 million limit for 2025, or the higher $15 million limit set to take effect for 2025, the vast majority of Americans won’t die with estates large enough to trigger the estate tax. Still, it’s helpful to understand when federal estate tax is levied and why, and which states may collect estate and/or inheritance taxes when someone passes away.

Estate Planning Tips

• If you’re looking for professional assistance in navigating the estate planning process, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Estate planning can be complex, and that’s especially true if you’re someone with significant wealth. To make sure you have everything you need, read up on the essential estate planning tools for wealthy investors.
• Inheritance isn’t usually considered income, but certain types of inherited assets can have tax implications. Before you spend or invest your inheritance, read more inheritance taxes and exemptions.

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