Federal Estate Tax Exemptions 1997 Through 2018

Tax reform more than doubles the estate tax exemption in 2018

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Estate taxes don't affect everyone. In fact, it's estimated that only about one in every 517 estates will pay the tax for deaths that occurred in 2017.

That's because federal government offers an exemption that allows estates under a certain value to pass property to heirs tax-free, and that exemption is really very generous. It has increased consistently since 1997 while the estate tax rate has significantly decreased.

How the Exemption Works

The gross value of your estate must exceed the exemption amount for the year of your death before estate taxes become due. Even then, only the value over the exemption is taxable.

The exemption for 2018 is $11.18 million so if you die with an estate valued at $11,180,020, only $20 would be taxed. The first $11.18 million is exempt, so if your state is worth $11 million or any less, it would not be subject to a federal estate tax at all. 

The Exemption is "Portable" 

The government also allows you to transfer any unused portion of your exemption to your spouse if you're married. This is called "portability". If your estate is worth $6 million, you'd have $5.18 million of your exemption left over and you can give this to your spouse.

Presumably, she inherited most if not all of that $6 million in property from you so this allows her to pass that property to her heirs tax-free.

Her estate is also entitled to an exemption in the year she dies and she can add your unused exemption to that.

Your estate must file an estate tax return to let the Internal Revenue Service know that you're making this transfer, even though no taxes are due. 

Recent Changes in Federal Estate Tax Laws

Estate taxes in 2010 through 2012 were based on the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act signed into law by President Obama on December 17, 2010.

This law was only good for two years. It was supposed to "sunset" or expire on December 31, 2012 so the federal estate tax exemption and rate would default to the numbers that were in effect in 2001 and 2002 on January 1, 2013.

That didn't happen. Congress passed the American Taxpayer Relief Act (ATRA) on January 1 and President Obama signed it into law on January 2, 2013. ATRA was intended to make permanent changes to the laws governing federal estate taxes, gift taxes, and generation-skipping transfer taxes.  

Then came President Trump and the Tax Cuts and Jobs Act in December 2017. In addition to other sweeping tax law changes, the TCJA increased the estate tax exemption significantly. It was only $5.49 million in 2017. The TCJA more than doubled that, increasing it to $11.18 million. 

Historical and Future Federal Estate Tax Exemptions and Rates

Here's how the estate tax has broken down over the years: 

YearEstate Tax ExemptionTop Estate Tax Rate
1997$600,00055%
1998$625,00055%
1999$650,00055%
2000$675,00055%
2001$675,00055%
2002$1,000,00050%
2003$1,000,00049%
2004$1,500,00048%
2005$1,500,00047%
2006$2,000,00046%
2007$2,000,00045%
2008$2,000,00045%
2009$3,500,00045%
2010$5,000,000 or $035% or 0%
2011$5,000,00035%
2012$5,120,00035%
2013$5,250,00040%
2014$5,340,00040%
2015$5,430,00040% 
2016$5,450,00040%
2017$5,490,00040% 

The heirs of decedents who died in 2010 had a choice. They could use the $5 million estate exemption at the 35 percent estate tax rate, or they could elect to use the $0 estate tax exemption at a 0 percent tax rate, coupling the use of modified carryover basis rules.

The $11.18 million exemption for 2018 will remain in place and may even increase slightly from year to year because it's regularly adjusted for inflation. But the Tax Cuts and Jobs Act isn't forever. It's slated to expire after 2025 so it's entirely possible that the exemption amount will plummet to its old levels at that time. 

The tax rate for 2018 remains at 40 percent.