One Big Beautiful Act: New US Federal Estate Tax Limit Announced

The US federal estate tax has come a long way since 2000, when the exemption level was set at $675,000. The amount has increased significantly over the past 25-odd years. Americans who die in 2025 may ideally leave behind tax free to their heirs up to a whopping $13.99 million.

What is the Federal Estate Tax?

The federal estate tax is a tax on the transfer of property upon a person’s death. It applies to the gross estate — the total value of all assets owned at the time of death, including real estate, cash, investments, businesses and other property.

Key Elements of the U.S. Federal Estate Tax Law (2025):

1. Exemption Cap Limit

• For 2025, the federal estate tax exemption is approximately a magnum over $13 million per individual. This means estates valued under $13.61 million are not subject to federal estate tax.
• Married couples can effectively double this exemption with proper planning (and take it to around $27.22 million).

2. Tax Rate

• The federal estate tax rate is progressive, reaching up to 40% for the largest estates. The first portion of the estate above the exemption is taxed at lower rates, with the 40% rate is applied to amounts over $1 million above the exemption.

3. Portability

• If a spouse dies without using their full exemption, the surviving spouse can effectively ‘port’ the unused amount to apply to their own estate — a process called portability. To claim this, IRS Form 706 must be filled.

4. Special Provisions

• Closely held businesses and farms may receive special treatment to reduce the estate tax burden under certain IRS rules. Charitable donations made through the estate can reduce the taxable estate value.

Starting 2026, the exemption level will increase by roughly 7.2% to $15 million and adjust for inflation every year thereafter. That’s courtesy of the ‘One Big Beautiful Bill’ Act that Republicans strived for under President Donald Trump’s incumbent rule to sign it into a formal law.

Filing Requirements

• IRS Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) must be filed if the gross estate exceeds the exemption threshold.
• The deadline is generally up to 9 months from the date of death (with a 6-month extension available, if required and applied in advance).

An interesting fact that must be known is that the exemption level is effectively doubled for married couples. That’s because any unused exemption from the first spouse who dies can be passed to the surviving spouse, and the decedent’s estate can pass to the widow or widower tax free. Then, when they die, they will get up to two times the individual exemption level.

So essentially that equates comes to US $27.98 million tax free for couples this year and $30 million in the forthcoming year.

• Another analogy is that the estate tax exemption level is the same as the lifetime gift tax exemption level. That means essentially how much you’re allowed to exempt from estate taxes at death is reduced by how much you gave away in gifts while you were alive.)

Raising the exemption level to $15 million a person is likely to further reduce the already low share of estates subject to the estate tax.

In 2001, roughly 2.1% of Americans who died left behind taxable estates and that number dropped to just 0.07% in 2019, according to a survey carried out. As of this year, 12 states and the District of Columbia have an estate tax, according to the Tax Foundation. The states are- Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.

The exemption levels and the tax rates imposed vary from state to state.

In Massachusetts, for example, the exemption level is $2 million and depending how much more an estate is worth above that threshold, it may be subject to a tax rate between 0.8% and 16%. In Washington, up to $3 million may be exempt from the state estate tax but rates run as high as 35% on the taxable portion of an estate.