Federal Estate Tax Exemption Amounts

The Federal Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the time of your death. The total of all of these items, valued at their fair market value, is your “Gross Estate.” The property subject to estate tax may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in certain circumstances, reductions to value) are allowed in arriving at your “Taxable Estate.” These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Most estates do not need to file an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $11,180,000 in 2018, $11,400,000 in 2019, $11,580,000 in 2020, and $11,700,000 in 2021. In 2026, the exemption amount is scheduled to revert to its pre-2018 level of $5 million, as adjusted for inflation.

Treasury regulations state that taxpayers taking advantage of the increased exemption amounts by making gifts during the period 2018 to 2025 will not be adversely effected after 2025 when this amount reverts to its pre-2018 level of $5 million. Thus, taxpayers planning to make large gifts between 2018 and 2025 can do so without being concerned that they will lose the tax benefit of the higher exemption level once it decreases.

Since January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse and is known as the portability election.

See: Wealth Transfer Taxes (in 6 minutes)