Estate Tax Exemption for 2026: What OBBBA Made Permanent

No, the estate tax exemption did not drop on January 1, 2026. This was probably the single most asked estate planning question of the past decade, and the answer surprised a lot of people who had spent years preparing for the worst. To understand why so many families were worried, and why the outcome turned out better than anyone expected, you need to go back to 2017 and trace the full story.

The Tax Cuts and Jobs Act of 2017 roughly doubled the federal estate tax exemption, pushing it from about $5.49 million per person up to $11.18 million. That was a massive shift. Suddenly, a married couple using portability could protect over $22 million from federal estate tax. Estates that would have owed hundreds of thousands in tax were now completely exempt. The estate planning industry had to recalibrate everything. But there was a catch built into the law. The TCJA included a sunset provision, which meant the higher exemption was temporary. It was scheduled to expire after December 31, 2025, at which point the exemption would revert to pre-2017 levels, adjusted for inflation. Most projections put that reversion somewhere around $6.8 to $7.2 million per individual.

For eight years, that sunset date drove estate planning decisions across the country. Wealthy families accelerated large gifts into irrevocable trusts. Estate attorneys drafted complex structures designed to lock in the higher exemption before it disappeared. Financial advisors ran Monte Carlo simulations showing what would happen to family wealth under both scenarios. CPAs modeled gift tax strategies using Form 709 to report transfers that would eat into the lifetime exemption. The entire estate planning world operated under the assumption that the clock was ticking and every month that passed was one month closer to losing nearly half the exemption.

Then in mid-2025, Congress passed the One Big Beautiful Bill Act, commonly called OBBBA, and the President signed it into law on July 4, 2025. Section 70411 of OBBBA amended IRC Section 2010(c)(3) and did something the estate planning community had been hoping for but not counting on. It made the higher exemption permanent and actually raised it beyond where it had been. The new baseline exemption was set at $15 million per individual, with annual inflation adjustments from now on. The sunset clause from the TCJA was eliminated entirely. There was no phase-out, no gradual reduction, no contingency. The $15 million exemption was simply the new law.

So when the calendar turned to January 1, 2026, the exemption did not drop to $7 million. It climbed to $15 million. That is more than double what everyone had been bracing for throughout 2024 and early 2025. A married couple can now shelter up to $30 million through portability elections, assuming both spouses have their full exemption available. That number would have seemed unthinkable just a few years earlier.

The practical effect of this change has been enormous. Families that had rushed to make large taxable gifts in 2024 and early 2025 to use up the exemption before the sunset now find themselves with a permanent exemption that is actually larger than the one they were trying to preserve. In most cases, that is not a bad outcome. The gifts are valid, the assets are outside the estate, and any future growth on those assets will also stay outside the estate. But it does mean that the urgency which drove so many planning decisions has evaporated entirely.

For anyone who had not yet made large gifts before 2026, the new law provides significant breathing room. There is no longer a deadline looming over every estate planning conversation. You can take your time, evaluate your options, consider the tax implications of gifting versus holding, and make transfers when the timing makes sense for your family rather than racing against a legislative clock. The annual gift tax exclusion for 2026 is $19,000 per recipient, and that amount is completely separate from the $15 million lifetime exemption.

If you had estate planning documents drafted specifically to deal with the sunset scenario, those documents should be reviewed. Some trusts included provisions that triggered based on the exemption amount dropping below a certain level. Others contained formula clauses that allocated assets between a credit shelter trust and a marital trust based on the available exemption. With the exemption now set permanently at $15 million rather than reverting to $7 million, these formula clauses may produce results very different from what was originally intended. An irrevocable trust that was funded to absorb a $7 million exemption might now be underfunded relative to the $15 million exemption, leaving planning opportunities on the table.

For clients with estates between $7 million and $15 million, the OBBBA change effectively removed them from federal estate tax exposure entirely. If your estate falls in that range, you no longer need to worry about federal estate tax planning at all, though state estate taxes may still apply depending on where you live. For those with estates above $15 million, the planning conversation shifts from “use it before you lose it” to a more deliberate long-term strategy involving trusts, charitable giving, generation-skipping transfers, and strategic use of valuation discounts.

Talk to our CPA team about how the permanent exemption affects your specific situation and whether your existing estate plan needs updating.

One thing worth noting is how Form 706 filing requirements have changed in light of the higher exemption. The filing threshold for federal estate tax returns is tied to the exemption amount. For 2026, estates valued at less than $15 million generally do not need to file Form 706 unless they want to elect portability. But even if filing is not required, it is often advisable. The portability election, which lets a surviving spouse inherit the deceased spouse’s unused exemption, can only be made by filing a timely Form 706. Missing that filing deadline can cost a family $15 million in lost exemption, which at the 40 percent estate tax rate translates to $6 million in potential tax. That is too much money to leave on the table because of a missed deadline.

January 1, 2026, came and went without the estate tax cliff that so many people feared. OBBBA replaced uncertainty with permanence and gave families a higher exemption than they had under the TCJA. If you have not reviewed your estate plan since this change took effect, now is the time to do it. The rules have changed in your favor, and your planning should reflect that.

The federal estate tax exemption for 2026 is $15 million per individual. For a married couple, that means up to $30 million can pass to heirs free of federal estate tax, assuming both spouses’ exemptions are fully available through portability. This figure comes directly from the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, and permanently reset the exemption at this higher level starting in tax year 2026.

To put that number in perspective, consider where things stood just a few years ago. In 2024, the estate tax exemption was $13.61 million per person. In 2023, it was $12.92 million. In 2022, it was $12.06 million. Going back to 2017, before the TCJA took effect, the exemption was only $5.49 million per person. The trajectory has been sharply upward over the past decade, and OBBBA locked in the most generous exemption in the entire history of the federal estate tax. There has never been a time when so much wealth could pass free of estate tax at the federal level.

The $15 million figure is a base amount that will be adjusted annually for inflation from now on, under IRC Section 2010(c)(3) as amended by OBBBA. The adjustment mechanism uses the Chained Consumer Price Index (C-CPI-U), the same measure used for income tax bracket adjustments. That means in 2027, the exemption will likely be somewhere around $15.3 to $15.5 million, depending on inflation. The IRS typically announces the inflation-adjusted amount in Revenue Procedure releases during the fall for the following tax year. So by October or November of 2026, we should know the exact 2027 figure.

The estate tax itself applies to the value of everything you own at the time of your death, minus certain deductions. Your gross estate includes real estate, stocks, bonds, mutual funds, business interests, bank accounts, retirement accounts like IRAs and 401(k)s, life insurance proceeds if you owned the policy, vehicles, art and essentially any asset with value. From that gross estate total, you subtract allowable deductions like outstanding debts, mortgage balances, funeral and administration expenses, charitable bequests, and the unlimited marital deduction for assets passing to a surviving spouse who is a U.S. citizen. Whatever remains after those deductions is your taxable estate.

If your taxable estate is below $15 million, you owe zero federal estate tax. Period. If it exceeds $15 million, the excess is taxed at a flat 40 percent rate. So for someone who dies in 2026 with a taxable estate of $17 million, the estate tax calculation would be 40 percent of $2 million, which equals $800,000. For a taxable estate of $20 million, the tax would be $2 million. At $25 million, the tax jumps to $4 million. The math is straightforward once you know the exemption amount and the estate’s total value.

One thing that frequently trips people up is the difference between the lifetime estate tax exemption and the annual gift tax exclusion. These are two completely separate numbers that work together but serve different purposes. The annual exclusion for 2026 is $19,000 per recipient. That is the amount you can give to any individual each year without it even counting against your lifetime exemption. You do not need to file Form 709 for gifts that stay within the annual exclusion. A married couple using gift-splitting can give $38,000 per recipient per year.

The $15 million exemption, by contrast, is a cumulative lifetime amount. It applies to both taxable gifts that exceed the annual exclusion and to transfers made at death. Any taxable gifts you make during your lifetime reduce your available estate tax exemption dollar for dollar. This is what tax professionals call the “unified credit” system under IRC Sections 2505 and 2010. Gifts and estate transfers draw from the same pool of exemption.

For example, suppose you gave your daughter $1 million above the annual exclusion amount in 2024. You would have filed Form 709 to report that gift, and it would have reduced your available lifetime exemption by $1 million. Under the current rules with the $15 million exemption, your remaining available exemption in 2026 would be $14 million rather than $15 million. If you made no other taxable gifts and died in 2026, your estate could pass up to $14 million tax-free, not $15 million. The prior gift effectively “used up” $1 million of your unified credit.

The portability election deserves special attention here because it is both incredibly valuable and frequently mishandled. If one spouse dies and does not use their full $15 million exemption, the surviving spouse can claim the unused portion, called the Deceased Spousal Unused Exclusion (DSUE) amount. But here is the critical part: the DSUE can only be claimed by filing Form 706, the federal estate tax return, for the deceased spouse’s estate. This is true even if the estate is well below the filing threshold and owes no tax at all.

Without filing Form 706, the unused exemption is lost permanently. This is one of the most common and most expensive mistakes in estate planning. Families leave millions of dollars in unused exemption on the table simply because nobody filed the return. If a spouse dies in 2026 with a $3 million estate, filing Form 706 would preserve $12 million in DSUE for the surviving spouse. At the 40 percent tax rate, that is $4.8 million in potential tax savings. The filing cost is a few thousand dollars. The return on that investment is extraordinary. If you have recently lost a spouse, contact our office immediately to discuss whether a portability election makes sense.

Finally, keep in mind that the federal exemption is only part of the picture. State estate taxes operate independently. New York’s estate tax exemption is roughly $7.16 million for 2026, less than half the federal amount. Other states like Massachusetts have exemptions as low as $2 million. Even if your estate is well below the federal $15 million threshold, state-level planning may still be necessary depending on where you live and where you own property.

The anti-clawback rule still exists in the tax code, but its practical importance has changed significantly after OBBBA made the higher estate tax exemption permanent. To understand why this rule matters and whether it affects your planning, you need to know what it was designed to prevent and how the legislative landscape has shifted beneath it.

Yes, New York has its own estate tax, and it operates very differently from the federal estate tax. This is one of the most important things for New York residents to understand, because the state exemption is dramatically lower than the federal one, and the way the state tax is calculated includes a feature that catches a lot of families off guard and can produce devastating results if you are not prepared for it.

For 2026, the New York estate tax exemption is approximately $7.16 million, adjusted annually for inflation under New York Tax Law Section 952. Compare that to the federal exemption of $15 million per person. That gap of nearly $8 million means there is a large group of New York residents who owe zero federal estate tax but face a significant state estate tax bill. A New York resident who dies with a $10 million estate, for example, would owe nothing to the IRS but could owe hundreds of thousands of dollars to New York State. The two systems are completely independent, and falling below the federal threshold provides no protection whatsoever from the state tax.

What makes New York’s estate tax particularly dangerous is the so-called “cliff” feature. In most tax systems, including the federal estate tax, only the amount above the exemption gets taxed. You keep the exemption as a tax-free floor, and the tax applies to whatever exceeds it. New York does not work that way. If your taxable New York estate exceeds 105 percent of the exemption amount, the exemption disappears entirely and your full estate is subject to tax from dollar one. Not just the excess. The whole thing.

Let me put real numbers on that so the magnitude of this cliff is clear. If the 2026 New York exemption is $7.16 million, then 105 percent of that is approximately $7.518 million. If your estate is worth $7.15 million, congratulations, you owe nothing. Zero New York estate tax. But if your estate is worth $7.52 million, just $360,000 above the exemption, the cliff kicks in. The exemption vanishes and your entire $7.52 million estate is subject to New York estate tax. At New York’s graduated rates, which range from 3.06 percent at the low end up to 16 percent for estates above $10.1 million, the tax on a $7.52 million estate could be roughly $430,000 to $490,000. You went from zero to nearly half a million in tax liability because of $360,000 in extra value. In effect, that extra $360,000 triggered a tax bill that exceeds it by a factor of more than twelve.

This cliff creates perverse planning incentives unlike anything in the federal system. Some families deliberately give away assets before death specifically to keep their estate below the 105 percent threshold. Others restructure ownership of real estate or business interests, move assets into irrevocable trusts, or make charitable bequests designed to bring the taxable estate just under the line. The planning around this cliff is one of the most common reasons New York residents with estates between $5 million and $10 million seek professional estate planning help. Missing the mark by even a small amount can result in a tax bill that dwarfs the excess value.

New York taxes the estates of its residents on their worldwide assets, similar to the federal approach. If you are domiciled in New York at the time of your death, everything you own everywhere in the world is included in your New York gross estate. But New York also taxes nonresidents on real property and tangible personal property located within the state. So if you live in Florida or Texas but own a $4 million condominium on the Upper East Side, that property could be subject to New York estate tax even though you are not a New York resident. The nonresident tax is calculated by applying the New York estate tax rate to the full estate and then prorating it based on the ratio of New York property to total assets.

The rules for determining domicile are fact-intensive, and New York has been notoriously aggressive about auditing people who claim to have moved out of state. The New York State Department of Taxation and Finance looks at factors including where you spend the most nights, where your closest social and family ties are located, where you maintain active business interests, where your valuables and important documents are kept, and where you vote. Simply buying a house in Florida and filing a declaration of domicile is not enough if you continue to spend significant time in New York. Domicile audits can go back years and involve detailed review of credit card statements, cell phone records, and calendar entries.

The New York estate tax return is Form ET-706, and it is due nine months after the date of death, the same deadline as the federal Form 706. Extensions of time to file are available, but only for filing, not for payment. If any New York estate tax is due, it accrues interest from the original nine-month due date regardless of whether a filing extension has been granted. The interest rate changes quarterly and has historically been in the range of 7 to 9 percent annually, which adds up quickly on a large tax bill.

One planning technique that has become more valuable since OBBBA raised the federal exemption to $15 million is using lifetime gifts to reduce the New York taxable estate. New York does not impose its own gift tax on lifetime transfers, though there is a clawback provision for gifts made within three years of death. If you make a gift more than three years before you die, it is completely excluded from your New York taxable estate. So a New York resident with a $9 million estate could give $2 million to their children today, and if they survive more than three years, their New York taxable estate drops to $7 million, safely below the exemption. Since the federal exemption is $15 million, the gift has zero federal estate tax impact.

New York is not the only state with its own estate tax. Massachusetts has an exemption of just $2 million. Oregon’s is roughly $1 million. Minnesota, Washington, Illinois and several others each have their own systems with different exemptions and rate structures. But New York’s cliff feature makes it uniquely punishing for families near the threshold. If you are a New York resident with an estate anywhere between $5 million and $12 million, you need state-specific planning that addresses this cliff. The Reed Corporation is based in New York and handles these situations regularly. We can model the exact numbers for your estate, identify strategies to minimize or eliminate your New York exposure, and coordinate with your estate attorney to implement whatever structure makes the most sense.

For a deeper look at how the federal exemption interacts with state-level planning, see our full guide on the 2026 estate tax exemption.

Yes, lifetime gifts remain one of the most powerful estate planning tools available, even after OBBBA made the $15 million exemption permanent. In fact, some of the arguments for making large gifts are stronger now than they were when everyone was racing to beat the sunset. The key difference is that the urgency has been removed, which actually allows for better, more thoughtful planning instead of panicked last-minute transfers.

The first reason to consider lifetime gifts is simple math involving future growth. When you transfer an asset out of your estate, all of the future appreciation on that asset also leaves your estate. If you give your child $5 million worth of stock today and that stock grows to $12 million by the time you die in twenty years, the $7 million in appreciation is never part of your taxable estate. You used $5 million of your $15 million exemption, but you effectively transferred $12 million out of your estate. That growth use is the central advantage of early gifting, and it works the same way regardless of the exemption amount.

Consider a concrete example with rental property. Say you own a portfolio of rental properties worth $3 million today, generating $150,000 in annual net rental income. If you transfer those properties into an irrevocable trust for your children now, using $3 million of your exemption, the rental income begins accumulating inside the trust and completely outside your estate. Over fifteen years at that income level, the trust accumulates $2.25 million in rental income alone, before accounting for reinvestment returns and property appreciation. Add in appreciation of, say, 3 percent annually on the underlying properties, and the $3 million portfolio grows to roughly $4.67 million. The total value inside the trust after fifteen years could easily reach $7 to $8 million, all stemming from a $3 million gift that used $3 million of your $15 million exemption.

The annual gift tax exclusion is another tool that works alongside large lifetime gifts and does not require using any of your lifetime exemption at all. For 2026, you can give $19,000 per recipient per year with zero gift tax consequences and no Form 709 filing required. A married couple using gift-splitting can give $38,000 per recipient per year. If you have three children and six grandchildren, that is nine recipients at $38,000 each, totaling $342,000 per year that leaves your estate with absolutely no impact on your $15 million lifetime exemption. Over ten years, that is $3.42 million transferred to the next generation completely tax-free. Over twenty years, it is $6.84 million. These annual exclusion gifts are often the most overlooked tool in the estate planning toolkit because they seem small individually, but they compound into enormous wealth transfers over time.

There are also situations where gifts of specific assets can be made at a discount, allowing you to transfer more economic value while using less of your exemption. If you own an interest in a family limited partnership or LLC, the fair market value of a minority, non-controlling interest in that entity may be worth less than the proportional share of the underlying assets. This is because a minority interest holder cannot force a sale, cannot control distributions, and typically cannot sell the interest on the open market without restrictions. A qualified appraiser might determine that a 25 percent interest in an LLC holding $10 million in commercial real estate is worth $1.8 million rather than $2.5 million, reflecting discounts for lack of marketability and lack of control of roughly 28 percent combined.

These valuation discounts allow you to transfer the economic benefit of $2.5 million in underlying assets while using only $1.8 million of your exemption. The IRS does scrutinize these discounts closely, and they have been the subject of extensive litigation over the years. You need a qualified, independent appraiser and solid documentation showing that the entity has a legitimate business purpose beyond tax planning. The operating agreement should include real restrictions on transfers and distributions. When done properly, though, valuation discounts are a well-established and legally supported planning technique that has been upheld by courts repeatedly.

Grantor retained annuity trusts, known as GRATs, are another gifting strategy that has become a staple of sophisticated estate planning. A GRAT allows you to transfer assets to a trust while retaining an annuity payment back to yourself for a set term, typically two to ten years. At the end of the term, whatever remains in the trust above the annuity payments passes to your beneficiaries. The gift tax value of the GRAT is calculated based on the IRS Section 7520 interest rate at the time the trust is created. If the assets inside the trust grow faster than the 7520 rate, the excess growth passes to your beneficiaries entirely free of gift and estate tax. Zeroed-out GRATs, where the annuity is set to return the full original value plus the 7520 rate, have a gift tax value of approximately zero, meaning they use little to none of your lifetime exemption. They are especially effective for assets with high growth potential like pre-IPO stock or appreciating real estate.

One important caveat about all lifetime gifts: you give up the step-up in basis that applies to assets transferred at death. When someone dies and passes assets through their estate, the beneficiaries receive those assets with a tax basis equal to the fair market value at the date of death under IRC Section 1014. That step-up eliminates all unrealized capital gains accumulated during the decedent’s lifetime. When you gift an asset during your lifetime under IRC Section 1015, the recipient takes your original cost basis, also called carryover basis. So if you bought stock for $100,000 and gift it when it is worth $2 million, the recipient has a $100,000 basis. If they sell it for $2 million, they owe capital gains tax on $1.9 million in gains.

This basis trade-off is a real consideration that should factor into every gifting decision. For highly appreciated assets where the beneficiary plans to sell relatively soon, it might make more sense to hold the asset until death to get the step-up. For assets with minimal built-in gain, or for income-producing assets like rental properties where the goal is to shift the income stream to the next generation rather than sell, gifting during your lifetime is often the better choice. Cash gifts have no basis issue at all since cash has a basis equal to its face value.

The permanent $15 million exemption also changes the gifting calculus for people with moderate estates. If your total estate is $8 million and you are single, you are well below the federal exemption and do not need to make gifts for federal estate tax reduction purposes. However, there are non-tax reasons to gift during your lifetime that remain compelling: helping a child make a down payment on a home, funding a grandchild’s education through direct tuition payments (which are not even subject to the annual exclusion limit under IRC Section 2503(e)), providing seed capital for a child’s business, or simply enjoying the satisfaction of watching your family benefit from your wealth while you are still alive to see it.

For those with estates approaching or exceeding $15 million, the case for strategic gifting remains strong. Lock In the current asset values, move all future appreciation outside your estate, take advantage of valuation discounts where appropriate, and rest easy knowing the anti-clawback rule protects gifts made under the current exemption. There is no rush now that the sunset is gone, but there is also no reason to delay if the math works in your favor. Our CPA team at The Reed Corporation can run detailed projections for your specific portfolio and help you determine what to transfer, when to do it, and through what structure.