Estate Tax: Definition, Tax Rates and Who Pays

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What is the federal estate tax?
2025 estate tax exemptions
How the federal estate tax works
Estate tax rates and limits
Tax rate | Taxable amount | Tax owed |
---|---|---|
18% | $0 to $10,000. | 18% of taxable amount. |
20% | $10,001 to $20,000. | $1,800 plus 20% of the amount over $10,000. |
22% | $20,001 to $40,000. | $3,800 plus 22% of the amount over $20,000. |
24% | $40,001 to $60,000. | $8,200 plus 24% of the amount over $40,000. |
26% | $60,001 to $80,000. | $13,000 plus 26% of the amount over $60,000. |
28% | $80,001 to $100,000. | $18,200 plus 28% of the amount over $80,000. |
30% | $100,001 to $150,000. | $23,800 plus 30% of the amount over $100,000. |
32% | $150,001 to $250,000. | $38,800 plus 32% of the amount over $150,000. |
34% | $250,001 to $500,000. | $70,800 plus 34% of the amount over $250,000. |
37% | $500,001 to $750,000. | $155,800 plus 37% of the amount over $500,000. |
39% | $750,001 to $1,000,000. | $248,300 plus 39% of the amount over $750,000. |
40% | $1,000,001 and up. | $345,800 plus 40% of the amount over $1,000,000. |
Source: Internal Revenue Service |
Which states have an estate tax?
Estate tax exemptions by state
State | 2025 estate tax exemption amount |
---|---|
Connecticut | $13.99 million. |
District of Columbia | $4.87 million. |
Hawaii | $5.49 million. |
Illinois | $4 million. |
Maine | $7 million. |
Maryland | $5 million. |
Massachusetts | $2 million. |
Minnesota | $3 million. |
New York | $7.16 million. |
Oregon | $1 million. |
Rhode Island | $1.8 million. |
Vermont | $5 million. |
Washington | $3 million. |
What is the difference between an inheritance tax and an estate tax?
- Five states have an inheritance tax, and one collects both estate and inheritance taxes.
- Inheritance tax rates often depend on the heir’s relationship to the deceased. A surviving spouse is usually exempt from state inheritance tax. Some states tax a deceased person's children, but at a low rate. More distant relatives or heirs who aren't related to the deceased usually face the highest inheritance tax rates.
How to reduce or avoid the federal estate tax
- Spending your assets. If you're not afraid of running out of money before you die, enjoy your wealth.
- Spreading your assets. You could give away part of your estate as gifts to loved ones while you're still around. Many states don't tax gifts.
- Giving away your assets. If you leave property to a qualifying charity, it is deductible from the gross estate.
- Shielding your assets in a trust. Properly created irrevocable trusts could provide a way to legally shelter some of your assets from state and federal estate taxes.
- Moving to a more favorable tax environment. Since most states don't have an estate tax or inheritance tax, you have many relocation options.
If you inherit or bequeath something, watch out for capital gains tax
- If your heirs sell an asset they inherited, any profit could be taxed at the federal level as either a long-term or short-term capital gain, depending on when they dispose of the property.
- If you do give your heirs a bequest, especially a sizable one, it's a good idea for them to talk with a financial advisor about the best ways to reduce capital gains tax.
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Article sources
- 1. Internal Revenue Service. Estate tax. Accessed Jul 3, 2025.
- 2. Internal Revenue Service. Instructions for Form 706. Accessed Jul 3, 2025.
- 3. Internal Revenue Service. Frequently Asked Questions on Estate Taxes. Accessed Jul 3, 2025.
- What is the federal estate tax?
- 2025 estate tax exemptions
- How the federal estate tax works
- Estate tax rates and limits
- Which states have an estate tax?
- What is the difference between an inheritance tax and an estate tax?
- How to reduce or avoid the federal estate tax
- If you inherit or bequeath something, watch out for capital gains tax