Federal Estate Tax Exemptions 1997 Through 2019
Estate taxes don't affect everyone. In fact, according to the Tax Policy Center, of the 4,000 tax returns of people who died, only 1,900 were taxable, which was less than 0.1 percent of the estimated 2.7 million people who died in 2018.
That is because the federal government offers an exemption that allows estates under a certain value to pass property to heirs tax-free, and that exemption is 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 2019 is $11.4 million. If you die with an estate valued at $11,400,020, only $20 would be taxed. The first $11.4 million is exempt, so if your estate is worth $11 million or less, it would not be subject to 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 are married. This is called "portability." If your estate is worth $6 million, you would have $5.4 million of your exemption left over, and you can give this to your spouse.
Presumably, your spouse inherits most if not all of that $6 million in property, so this allows him or her to pass that property to any heirs tax-free. The estate is also entitled to an exemption in the year your spouse dies, and any unused exemption can be added to that amount.
Your estate must file an estate tax return to let the Internal Revenue Service know that you are 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 did not 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, President Trump passed the Tax Cuts and Jobs Act (TCJA) 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 $11.4 million for 2019.
Historical and Future Federal Estate Tax Exemptions and Rates
Here's how the estate tax has broken down over the years:
|Year||Estate Tax Exemption||Top Estate Tax Rate|
|2010||$5,000,000 or $0||35% or 0%|
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 $11.4 million exemption for 2019 will remain in place and may even increase slightly from year to year because it is regularly adjusted for inflation. But the TCJA is not forever. It is slated to expire after 2025, so it is entirely possible that the exemption amount will plummet to its old levels at that time.