2025 Federal Estate Tax Exemption Explained
The federal estate tax exemption for 2025 is $13.99 million per individual. Estates valued below this threshold owe zero federal estate tax. Married couples can effectively shelter up to $27.98 million using portability—a surviving spouse can claim the deceased spouse's unused exemption by filing IRS Form 706.
This historically high exemption exists because of the Tax Cuts and Jobs Act (TCJA) of 2017, which roughly doubled the prior exemption. Unless Congress acts, the exemption will revert to approximately $7 million per person (adjusted for inflation) on January 1, 2026. Estates that would be exempt today could face significant tax liability next year.
Only about 0.1% of estates—roughly 4,000 per year—owe federal estate tax under the current exemption. The IRS adjusts the threshold annually for inflation. In 2024 it was $13.61 million; for 2025, it rose to $13.99 million.
2025 Federal Estate Tax Brackets
Federal estate tax uses progressive brackets on the taxable amount above the exemption. Rates range from 18% to 40%, though in practice most taxable estates pay close to the top rate because the lower brackets cover relatively small amounts.
| Taxable Amount Over Exemption | Tax Rate | Tax on Bracket |
|---|---|---|
| $0 – $10,000 | 18% | $1,800 |
| $10,001 – $20,000 | 20% | $2,000 |
| $20,001 – $40,000 | 22% | $4,400 |
| $40,001 – $60,000 | 24% | $4,800 |
| $60,001 – $80,000 | 26% | $5,200 |
| $80,001 – $100,000 | 28% | $5,600 |
| $100,001 – $150,000 | 30% | $15,000 |
| $150,001 – $250,000 | 32% | $32,000 |
| $250,001 – $500,000 | 34% | $85,000 |
| $500,001 – $750,000 | 37% | $92,500 |
| $750,001 – $1,000,000 | 39% | $97,500 |
| Over $1,000,000 | 40% | 40% of excess |
Source: IRS Revenue Procedure 2024-40. Brackets apply to the taxable estate amount exceeding the $13.99M exemption.
The Unlimited Marital Deduction
Assets transferred to a surviving U.S. citizen spouse are completely exempt from estate tax—no limit, no cap. This is the unlimited marital deduction. A $50 million estate left entirely to a spouse owes zero federal estate tax at the first death.
The catch: this defers the tax, it does not eliminate it. When the surviving spouse dies, their estate (including inherited assets) faces estate tax on amounts above their own exemption. Smart estate planning uses both spouses' exemptions through credit shelter trusts (also called bypass trusts or A-B trusts) to shelter up to $27.98 million combined.
Non-citizen spouses do not qualify for the unlimited marital deduction. Instead, transfers must go into a Qualified Domestic Trust (QDOT) to qualify for any marital deduction. The annual gift tax exclusion for non-citizen spouses is $185,000 in 2025, compared to unlimited for citizen spouses.
States with Their Own Estate Tax
Thirteen states plus Washington, D.C. impose a separate estate tax on top of the federal tax. State exemptions are typically much lower than the federal threshold, meaning estates that owe nothing to the IRS may still owe state estate tax.
| State | Exemption | Top Rate |
|---|---|---|
| Connecticut | $13.61M | 12% |
| District of Columbia | $4.71M | 16% |
| Hawaii | $5.49M | 20% |
| Illinois | $4.00M | 16% |
| Maine | $6.80M | 12% |
| Maryland | $5.00M | 16% |
| Massachusetts | $2.00M | 16% |
| Minnesota | $3.00M | 16% |
| New York | $6.94M | 16% |
| Oregon | $1.00M | 16% |
| Rhode Island | $1.77M | 16% |
| Vermont | $5.00M | 16% |
| Washington | $2.19M | 20% |
Source: Tax Foundation 2025 state estate tax data. Maryland also has a separate inheritance tax. State exemptions and rates are subject to legislative changes.
Estate Planning Strategies to Reduce Tax
Annual gift exclusion. You can give up to $19,000 per person per year (2025) without using any of your lifetime exemption. A married couple can give $38,000 per recipient. Gifting $19,000 annually to 5 grandchildren removes $95,000 per year from your estate—$950,000 over a decade—with zero gift tax and zero estate tax impact.
Irrevocable life insurance trust (ILIT). Life insurance proceeds count as part of your gross estate if you own the policy. An ILIT holds the policy outside your estate, keeping the death benefit from being taxed. For a $5 million policy, this can save $2 million in estate tax at the 40% rate.
Charitable remainder trust (CRT). A CRT pays you income during your lifetime, then transfers the remaining assets to charity at death. You get an income tax deduction when you fund it, ongoing income, and the charitable transfer reduces your taxable estate. Particularly effective for highly appreciated assets.
Grantor retained annuity trust (GRAT). A GRAT transfers asset appreciation to heirs at minimal gift tax cost. You contribute assets, receive annuity payments for a set term, and any growth above the IRS Section 7520 rate passes to beneficiaries tax-free. Zeroed-out GRATs (where the annuity equals the contribution) are a standard tool for transferring wealth from appreciating assets.
Family limited partnerships (FLPs). Transferring business or investment assets to an FLP lets you gift limited partnership interests at discounted values (typically 20-35% valuation discounts for lack of control and marketability). A $10 million asset transferred at a 30% discount uses only $7 million of exemption.
To estimate capital gains tax on inherited or sold assets, use the capital gains calculator. To determine how much life insurance coverage you need and how it affects your estate, try the life insurance calculator.