In the United States, upon your death the federal government assesses a tax on the sum of your estate when you pass away. When your intended beneficiaries or executor/trustee take possession of your assets, they must pay a tax from the balance of the estate. This tax, with a rate up to 40%, primarily exists to encourage individuals to transfer their assets before they pass away. Understanding how to calculate your federal estate tax can be tricky. Here is a breakdown of how to understand it, and what you need to know.

The first step to finding your federal estate tax is to find the total value of all your assets, or your “gross estate.” This is the net value of the belongings of the deceased person, and it can be anything material or non-material. Some examples of material include cash, jewelry, real estate, antiques, artwork or any other collectibles. Some non-material items include stocks, life insurance, certain trusts, retirement plans, and any other part of that person’s life that can incur monetary value. The value of all these items is calculated according to their fair market value at the decedent’s date of death. Gross estate also includes partially owned property, where your share will be valued at fair market value.

The next step is to account for deductions and gift taxes to arrive at your “taxable estate.” Deductions include funeral expenses, mortgages, qualified charities, or operating business interests. Much like when calculating the gross estate, it consists of anything that has a determinable value. A lower taxable estate can be desired if you are aiming for an exemption.

Before proceeding, you may want to make sure you are not eligible for an exemption. The federal estate tax must be incurred on any U.S. citizen or U.S. resident. However, if the taxable estate falls under a certain amount, you can receive an exemption. Every year the amount changes to account for inflation, and for married couples, each spouse gets their own exemption. In this year, 2025, the exemption threshold for the estate tax for an individual is $13,990,000.

The exemption from the tax may be reduced if the individual gave “gifts” over the course of their lifetime, with a dollar-for-dollar reduction in the exemption for any gifts given over the gift tax exclusion annual limit. Gifts can encompass more than what one would consider a regular gift. They include any transfer of property where the giver receives nothing or less than the property’s real value in return. The “property” being gifted can include money. Donating to charities will also allow for a deduction from the exemption threshold. A gift can also include a sum of interest that should have been charged on an interest-free loan. When any gifts are made over the exclusion limit, a gift tax return must be filed annually.

Like most taxes, the estate tax has a time limit on when it must be paid. At base, it is due within nine months of the estate owner’s death. However, small business owners can push this to five years, and installments can be agreed upon for ten years. For these time delays, 35% of the estate must be within a farm of small business.

If you are required to file the estate tax, you should fill out Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. This will walk you through calculating your gross estate, deductions, gifts, and taxable estate.

Approaching Sunset of the Exemption Threshold

$13,990,000 may seem like a high threshold for exemption. This is due to the Tax Cuts and Jobs Act of 2017. This act set forth numerous changes to the Revenue Code of 1986. This act is known for reducing corporate taxes, increasing the standard deduction, and increasing the exemption amount for estate taxes. Under this act, the maximum amount families could gift their beneficiaries more than doubled and allowed the tax exemption to account for inflation. Additionally, as long as they stayed under the exemption amount, individuals could pass down assets without incurring a tax. However, the time to take advantage of these numbers is drawing to a close. The Tax Cuts and Jobs Act of 2017 is slated to sunset at the end of 2025. At the beginning of next year, the estate tax exemption threshold will plunge back to 2017 numbers accounting for slight inflation. The estimated amount the exemption will fall to is $6-7 million for an individual and around $14 million for a married couple. The final amount is yet to be determined .

Preparing ahead of time is key. If the Tax Cuts and Jobs Act of 2017 expires, the threshold could fall beneath your taxable estate, and you could be required to pay the estate tax whereas previously you were not. It is important to get in contact with an estate planning attorney and ensure all of your forms are in order.

Congressional Attempts to Prevent the Sunset

There is a possibility that Congress will decide to extend the Tax Cuts and Jobs Act of 2017. According to the Committee of Ways and Means, the oldest tax-writing body within the House of Representatives, Congress is looking to make the tax cuts permanent as a part of “The One, Big, Beautiful Bill” under Title XI. The provision of the current exemption would permanently extend the estate and lifetime gift tax exemptions, raise the exemption to $15,000,000, and allow for the continued accounting of inflation.

The passing of this bill, and an extension of the exemption threshold, is not guaranteed. This past weekend, the weekend of May 18^th 2025, it passed the House Budget Committee vote with a 17-16 vote, but it still has a long way to go. The bill is facing criticism from both parties, and as it encompasses much more than the extension of the Tax Cuts and Jobs Act of 2017 estate tax exemption, it could take much longer to pass and face criticism for unrelated sections. With its success in the House Budget Committee vote, the bill is now headed to the House of Representatives, and if it does pass, it should pass sometime this year. This will effectively cancel the sunset on the Tax Cuts and Jobs Act of 2017 estate tax exemption threshold.

Although the passing of a loved one could be years away, with the shifting environment of taxes and the looming sunset of the estate tax exemption, it is never too early to plan ahead.  If you believe your estate is greater than the federal estate tax exemption, we encourage you to speak with our estate planning attorney to discuss estate tax planning trusts, such as credit-shelter trusts, A-B trusts, disclaimer trusts, and irrevocable trusts.