What Is the Estate Tax Exemption 2024?

For high-value estates, taxation is an important aspect of estate planning — these estates are subject to federal (and sometimes state) estate taxes that can run as high as 40%.

Thankfully, the IRS lets many estates (and a portion of high-value estates) avoid taxation under the federal estate tax exemption. This post walks you through what you need to know: 

• How estate tax rates and exemptions work
• The 2024 estate tax exemption rates
• How gifts and gift tax exemptions can affect your estate tax exemption
• State estate taxes and state exemptions
• What’s about to change in 2026

How to plan your estate around estate taxes

At a high level, the following 4 steps can help you plan and prepare for estate taxes: 

1. Review federal and state tax laws: Look at the exclusion limits and tax rates when planning for estate tax liability to see how much your estate is likely to be affected.
2. Know how much your estate is worth: For high-value estates, you’ll need an inventory of all the assets you own — your bank accounts, home, other real estate, investments, vehicles, personal property, and even business ownership — as well as what you owe.  
3. Consider tax planning strategies: Gifts and charitable contributions could lower your estate’s value and lessen tax impact.
4. Consult with a professional: To minimize estate taxes for high-value estates, consider seeking assistance from a financial planner or estate attorney.

How does the federal estate tax exemption work?

First things first — an estate is the value of the property someone leaves behind once they’re gone. So estate taxes don’t apply until someone dies, and most estates don’t have to pay any tax at all. Why not? Because of the federal estate tax exemption.

The federal estate tax exemption excuses estates from paying estate taxes up to a certain value. In other words, every estate is tax-free up to a certain amount. If your estate is worth less than the current exemption amount, it pays no estate tax.

If your estate is worth more than that, estate taxes are only charged on the portion of the estate’s value that’s above the current limit.

What is the estate tax exemption for 2024?

The federal estate tax exemption for 2024 is $13.61 million. If your estate is worth less than that, it won’t have to pay any federal estate tax.

If your estate is worth more than that, estate taxes will be charged only on the portion of the estate’s value that’s above the $13.61M limit. That rate goes up with your estate’s value based on the following schedule.

Estate tax rates – 2024 estate tax schedule

Federal estate tax rates start at 18% and go up to 40%. 

Take a look at the first row in the chart below. If your estate is only $10,000 above the $13.61M limit, your estate will pay 18% estate tax on that $10,000 for a total tax of $1,800. (The first $13.61M is still tax-free.)

If your estate is $10,001 over the limit, your estate will pay the same $1,800 in tax on the first $10,000 and then 20% on that last extra dollar. As the rate goes up in the chart, each new rate doesn’t apply to your whole estate, just to the part shown in column A.

Internal Revenue Service – Form 706

Federal estate tax exemption examples

So how does this work, exactly? Let’s walk through it.

Assume an individual has an estate with a taxable value of $13.68 million. After excluding the federal estate tax exemption of $13.61 million, the estate has a taxable value of $70,000.  

Based on the IRS tables presented above, the estate’s tax liability is: 

• 18% on the first $10,000 = $1,800
• 20% on the next $10,000 = $2,000 
• 22% on the next $20,000 = $4,400
• 24% on the next $20,000 = $4,800
• 26% on the last $10,000 = $2,600

Add those up, and being $70,000 over the limit will only cost $15,600 in taxes. Not too bad for an estate worth $13.68 million — at least, not in the grand scheme of things.

Once your estate is $1 million over the limit though, the rate jumps to 40%. Because of the way the chart works, the first $1 million over will cost your estate $345,800 in federal estate taxes. Every extra $1 million beyond that will cost your estate another $400,000.

Needless to say, people who expect to have very large estates want to avoid as much of that tax as they legally can. So the next obvious thought is to give some of your estate away while you’re still alive, right? And keep just enough to avoid estate taxes.

That’s where the gift tax exemption comes in.

What is the gift tax exemption?

The gift tax exemption says you can only give so much of your money away to a specific recipient each year without starting to eat into your estate tax exemption.

In other words, you can’t avoid estate taxes on an estate worth $20 million by transferring $7 million of it as a lump-sum gift to your kid while you’re alive. 

Most of that gift will still count against your total estate tax exemption.

That’s because the IRS considers the lifetime gift tax exemption and the federal estate tax exemption to be one combined “unified credit.” The amount accumulated in your lifetime gift tax exemption reduces your available federal estate tax exemption. 

But you can still give some of your money away each year without eating into that tax credit.

Here’s how it works.

How does the gift tax exemption work?

Under the annual gift tax exemption, you can give up to a certain amount of money (or property value) away each year, per individual, and those gifts won’t count against your estate tax exemption.

For 2024, the annual gift tax exclusion is $18,000 per individual and $36,000 for married couples. 

If your total gifting for the year, per recipient, falls under this exempt amount, you don’t have to file a return. If your annual gift is higher than that, you would report it to the IRS on Form 709. 

You don’t need to pay tax on the gift now, but any amount over the annual exclusion will count against your lifetime estate tax exemption.

Gift tax exemption examples

Let’s say you have three kids. You can give up to $18,000 to each of your kids in 2024 without any tax ramifications. The annual gift tax exemption applies per recipient. So that’s $54,000 you can give away that won’t count against your lifetime estate tax exemption.

If your kids are married, you can give up to $18,000 to each of your kids in 2024 and also to each of their spouses, adding up to $36,000 per couple, with no tax ramifications. That $108,000 you can give away to your 3 kids and their spouses.

If each of those couples has 2 children, you can give $18,000 per year to each of those kids as well. Now you’re giving away up to $216,000 in 2024 without counting against your lifetime tax exemption.

And, if you’re married, your spouse can do the same thing, essentially doubling your exemption in each of the examples above. You can give up to $18,000 to each kid, spouse, and grandkid, and your spouse can also give up to $18,000 to each kid, spouse, and grandkid. 

You can also give money to friends, cousins, uncles, your grandkids’ spouses, etc. The exemption cap is per person, per recipient, per year.

Of course, if you need to give more than that to one person in a single year, you still can. The amount above the exemption will simply count against your lifetime estate exemption.

Let’s say you’re married, and you have an unmarried adult kid who needs $60,000 for graduate school this year:

• You and your spouse together give your kid the $60,000.
• The annual gift tax exclusion exempts $36,000 of it — $18k for each of you.
• The gift is above the exclusion by $24,000 for the year.
• You’ll report the gift to the IRS using Form 709.  
• Your joint lifetime gift tax exclusion will be reduced by the $24,000 overage. 

BUT DON’T MISS THIS PRO TIP: There’s also a 529 exclusion to the exclusion that lets parents contribute 5 years’ worth of exclusions in a single year. So in the scenario above, since the gift is for your kid, you could use that to exempt the entire amount.

What happens to the Federal Tax Exemption in 2026?

The federal estate tax exemption received a substantial bump in 2017 with the Tax Cuts and Jobs Act (TCJA). Yet, with the TCJA scheduled to end after 2025, the federal estate tax exemption is expected to drop back to its original $5 million limit (adjusted for inflation).  

With the exemption cut by more than half, more estates will be subjected to taxation by 2026. Unless new legislation passes to raise the federal exemption, estates should prepare for higher tax bills. 

Suppose you’ve taken advantage of the higher gift and estate tax exclusion rate — also known as a basic exclusion amount (BEA). In that case, you may wonder what happens to the estate’s tax calculation when the exemption resets to pre-2018 levels. The IRS has clarified that the estate can base its tax calculation on the greater of the BEA applicable when you made the gift or the BEA that applies at death. So, taxpayers won’t lose the tax benefit of gifts made between 2018 and 2025. 

Estate planning doesn’t only apply to the uber-wealthy. If you own a business, real estate, or investments, your assets may grow significantly over time. With the upcoming federal estate tax exemption changes, Uncle Sam could take a bite out of your estate if you aren’t prepared. 

How do state estate tax exemptions work?

While most states don’t levy an estate tax, some do. When determining an estate’s tax liability, you would consider both federal and state tax rules. 

Not every state charges an estate tax, but those that do exempt a portion of the estate’s value, just like the federal exemption. Tax rates apply to the estate value that exceeds the exemption. The rates and exemption limits, however, differ from the federal level. 

For instance, Oregon has an estate tax exemption of $1 million, with tax rates ranging from 10% to 16%. Vermont exempts $5 million of the estate’s value but charges a flat 16% tax on the excess.  

Refer to your state’s website for relevant information about estate taxes. 

Depending on where the estate’s assets reside, your estate could be subject to multiple states’ taxes. You can seek professional tax assistance to ensure compliance with state law.

States that charge an estate tax include: