Exemption From Federal Estate Taxes: 1916 - 1997

The History of the Federal Estate Tax Exemption

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The federal estate tax has been around in some shape or form since 1916. The table below shows the historical estate tax exemptions and top estate tax rates from 1916 through 1997. But before we get into the exemption's history, here's a brief explanation of just what the tax is and how the exemption applies. 

What Is the Federal Estate Tax?

The Internal Revenue Service taxes the transfer of virtually all property from one taxpayer to another.

If you're feeling particularly generous during your lifetime, a gift tax may come due. The estate tax covers property that is transferred to a new owner or beneficiary when you die. 

It's calculated on the value of your gross estate, less mortgages, other debts, and the administrative costs of settling your estate. You can also deduct money or property you give to charity. You can subtract the value of property that goes to your spouse -- bequests made to a spouse are not subject to an estate tax. 

Here's where it gets tricky: Your taxable estate is not necessarily your probate estate -- assets that require the probate process to transfer to a living beneficiary. It's everything you own or have an ownership interest in. Assets that pass directly to a named beneficiary, such as life insurance proceeds, payable-on-death bank accounts and retirement funds, do not require probate and are not part of your probate estate, but they contribute to the value of your estate for estate tax purposes.

What Is the Estate Tax Exemption?

The exemption is another extremely important deduction you can take from the gross value of your estate. In fact, thanks to this exemption, very few estates end up owing estate taxes. Only two of every 1,000 deaths resulted in this tax being owed in 2015 because the 2015 exemption was $5.43 million.

It increased to $5.47 million in 2017.

The value of an estate after all other deductions are made must exceed the exemption amount before the balance is subject to estate taxes. If your net estate is worth $5 million, it does not owe estate taxes. If it's $6 million, it will owe an estate tax on the $550,000 difference. 

The American Taxpayer Relief Act of 2012 indexed the exemption for inflation, so it increases a little from year to year. Here's how the exemption broke down over the first 81 years of the estate tax's existence. 

Historical Federal Estate Tax Exemptions and Rates: 1916 - 1997

YearEstate Tax ExemptionTop Estate Tax Rate
1916$50,00010%
1917-1923$50,00025%
1924-1925$50,00040%
1926-1931$100,00020%
1932-1933$50,00045%
1934$50,00060%
1935-1940$40,00070%
1941$40,00077%
1942-1976$60,00077%
1977$120,00070%
1978$134,00070%
1979$147,00070%
1980$161,00070%
1981$175,00070%
1982$225,00065%
1983$275,00060%
1984$325,00055%
1985$400,00055%
1986$500,00055%
1987-1997$600,00055%

 

Visit Table Showing Federal Estate Tax Exemption and Rate: 1997 - 2015 to see the estate tax exemptions and top estate tax rates after 1997. 

State-Level Estate Taxes

Fifteen states and the District of Columbia additionally impose their own estate taxes and offer their own exemptions as of 2015.

Very large estates may be taxed twice in these states, and even those that dodge the federal tax might owe state-level taxes because state exemptions tend to be significantly lower -- the exemption is just $675,000 in New Jersey. 

NOTE: State and federal tax laws can change frequently and the above information may not reflect the most recent changes. Please consult with an attorney or an accountant for the most up-to-date advice. The information contained in this article is not legal or tax advice and it is not a substitute for legal or tax advice.