Estate Tax Calculator

Estate Tax Calculator

Federal estate tax only affects the wealthiest households — fewer than 0.2% of estates owe any federal estate tax in a given year. But for those above the threshold, the 40% rate on taxable amounts can transfer hundreds of thousands or millions of dollars to the IRS rather than to family members. This calculator estimates your federal estate tax based on gross estate value, allowable deductions, and filing status, showing both the tax owed and the net amount your heirs would receive after taxes are paid.

How Estate Tax Is Calculated

Step 1 — Gross Estate: Add all assets at fair market value: real estate, investment accounts, retirement accounts, life insurance proceeds (if you own the policy), business interests, and personal property.

Step 2 — Deductions: Subtract allowable deductions: outstanding debts and mortgages, funeral expenses, administrative costs, charitable bequests, and the marital deduction (unlimited for assets passing to a U.S. citizen spouse).

Step 3 — Apply the exemption: Taxable Estate = Gross Estate - Deductions - Federal Exemption

Step 4 — Calculate tax: Estate Tax = Taxable Estate x 40%

The effective rate equals Estate Tax / Gross Estate. Note that the estate pays the tax before distributing assets to heirs.

Worked Examples

Example 1 — Single filer, moderate estate ($16,000,000 gross): Gross estate $16,000,000. Deductions (debts + charitable gift): $600,000. Net estate: $15,400,000. Less exemption ($13,990,000 for 2026): $1,410,000 taxable. Estate tax: $564,000 (3.5% effective rate). Net to heirs: $14,836,000.

Example 2 — Married couple with portability ($32,000,000 gross): Gross estate $32,000,000. Deductions: $1,200,000. Net estate: $30,800,000. Less combined exemption ($27,980,000): $2,820,000 taxable. Estate tax: $1,128,000 (3.5% effective rate). Net to heirs: $29,672,000.

Example 3 — State estate tax exposure ($4,500,000 gross, Massachusetts resident): No federal estate tax owed — estate is below the federal exemption. However, Massachusetts imposes estate tax above $2,000,000 at rates up to 16%. On a $4,500,000 estate with $200,000 in deductions, the Massachusetts taxable estate is $2,300,000. The state tax could be approximately $138,000. Federal exemption protects this estate entirely, but state exposure is real.

Federal Estate Tax Reference Table (2026)

When to Use This Calculator

• When starting estate planning conversations with an attorney or financial advisor, to understand your current exposure
• After a major life event such as selling a business, receiving an inheritance, or purchasing additional real estate
• To model how various gifting strategies (annual exclusion gifts, charitable donations, trust transfers) would reduce your taxable estate over time
• When reviewing life insurance coverage, since policies owned by the insured are included in the gross estate
• To evaluate whether portability election (preserving a deceased spouse’s unused exemption) is worthwhile for your situation

Common Mistakes

1. Not including life insurance. Term or whole life policies where you are the owner and insured are included in your gross estate. A $2,000,000 policy can push an otherwise exempt estate over the threshold. Transferring ownership to an irrevocable life insurance trust (ILIT) removes it from the estate.
2. Ignoring state estate taxes. Twelve states and D.C. impose separate estate taxes with much lower exemptions. Residents of Oregon, Massachusetts, or Washington can owe state estate tax on estates that are nowhere near the federal threshold. Always check your state’s rules.
3. Assuming the current federal exemption is permanent. The $13.99 million exemption under the Tax Cuts and Jobs Act sunsets after 2025 unless extended by Congress. Under current law, the exemption reverts to approximately $7 million (inflation-adjusted) starting in 2026, capturing significantly more estates.
4. Failing to file a portability election. When the first spouse dies, the executor must file Form 706 within nine months (or 15 months with extension) to preserve the deceased spouse’s unused exemption. Missing this deadline permanently forfeits up to $13.99 million in exemption for the surviving spouse.

Current Context for 2026

The Tax Cuts and Jobs Act estate tax exemption was scheduled to sunset after December 31, 2025, which would have cut the per-person exemption roughly in half. The fate of that sunset depends on congressional action in 2025 and early 2026. Estates that were previously below the threshold may find themselves newly exposed if the exemption drops. Planning steps taken before any reduction — such as spousal lifetime access trusts (SLATs), grantor retained annuity trusts (GRATs), or outright gifts using the current high exemption — can lock in the benefit of today’s higher limits even if the law changes. The annual gift exclusion is $19,000 per recipient for 2026.

Tips

1. Gift up to $19,000 per recipient per year (2026 limit) to reduce your estate without using any lifetime exemption — a couple can jointly give $38,000 per recipient.
2. Use an irrevocable life insurance trust (ILIT) to keep life insurance proceeds out of your gross estate, since a $3,000,000 policy owned by the insured adds $3,000,000 to taxable value.
3. Consider a grantor retained annuity trust (GRAT) for appreciated assets — if the assets outperform the IRS hurdle rate (Section 7520 rate), the excess passes to heirs estate-tax free.
4. Make direct payments of tuition and medical expenses to the institution or provider — these payments do not count against your annual gift exclusion and can remove large amounts from your estate.
5. Review beneficiary designations on retirement accounts and life insurance annually — assets passing by beneficiary designation bypass probate but are still included in the gross estate.
6. This calculator provides estimates only and does not constitute legal or tax advice. For estates near or above the exemption, work with an estate planning attorney and CPA.

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