Inheritance Tax Calculator

The Tax Cuts and Jobs Act of 2017 roughly doubled the federal estate tax exemption, but this increase expires on January 1, 2026, reverting to pre-2018 levels of approximately $7 million per person (adjusted for inflation). This sunset will more than double the number of estates owing federal tax, potentially affecting millions of families who previously had no estate tax exposure. For a married couple, the combined exemption would drop from roughly $27 million to $14 million. Estate planners are advising high-net-worth families to use their exemption now through irrevocable trusts, Grantor Retained Annuity Trusts (GRATs), and strategic gifting before the window closes. The annual gift exclusion of $18,000 per recipient in 2024 allows tax-free transfers that do not count against the lifetime exemption, offering a powerful tool for gradual estate reduction.

While federal estate tax affects very few estates, state-level taxes have much lower thresholds that catch many more families. Six states impose inheritance tax paid by the heir based on their relationship to the deceased: Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and Iowa (phasing out). Rates range from 1% for close relatives to 15-18% for non-related beneficiaries. Separately, twelve states and DC impose estate taxes paid by the estate itself, with exemptions as low as $1 million in Oregon and Massachusetts. Maryland is the only state with both an estate tax and an inheritance tax. State tax planning often involves changing domicile (legal residence) to a no-tax state, using trusts to minimize the taxable estate at the state level, or timing gifts to reduce the estate before death. Always check both your state of residence and the state where assets are located.

Several powerful deductions can reduce or eliminate estate tax. The unlimited marital deduction allows unlimited tax-free transfers between US citizen spouses, effectively deferring estate tax until the second spouse dies. Charitable bequests are 100% deductible from the taxable estate, making philanthropic giving doubly attractive for wealthy families. Debts, funeral expenses, and administrative costs reduce the gross estate. Beyond deductions, planning strategies include Irrevocable Life Insurance Trusts (ILITs) that remove life insurance proceeds from the taxable estate, Charitable Lead Annuity Trusts (CLATs) that split assets between charity and heirs, and family limited partnerships that provide valuation discounts of 15-35% on business interests. The step-up in basis at death also benefits heirs — they inherit assets at current market value, eliminating capital gains tax on appreciation during the decedent's lifetime.

Federal estate tax is calculated on the taxable estate above the lifetime exemption, not on each heir's individual inheritance. According to the Internal Revenue Service (IRS), the estate itself files Form 706 and pays any tax before assets are distributed.

The calculation follows a fixed sequence:

• Add up the gross estate — the fair market value of all assets at the date of death.
• Subtract deductions: debts, funeral costs, administrative expenses, charitable bequests, and the marital deduction.
• Subtract the federal exemption set by the IRS for the year of death.
• Apply the top 40% rate to whatever remains above the exemption.

Because the exemption is indexed for inflation and changes yearly, always confirm the current figure on IRS.gov rather than relying on a memorized number. The result is the estate's federal tax liability.

Estate tax is paid by the estate before distribution, while inheritance tax is paid by the individual heir who receives assets. The IRS administers the federal estate tax; there is no federal inheritance tax at all.

The practical differences matter for planning:

• Estate tax — levied on the total estate; the executor pays it from estate funds.
• Inheritance tax — a state-level tax owed by each beneficiary, with rates that often depend on their relationship to the deceased.
• Who is exempt — spouses and, in many states, children face low or zero inheritance-tax rates, while distant relatives pay more.

Internationally, the term differs: HMRC in the United Kingdom calls its levy "Inheritance Tax" even though it functions much like a U.S. estate tax. Confirm which system applies to your situation before estimating.

Enter the estate's total value, subtract deductions, choose the year of death, and the calculator returns the estimated federal and state tax. This mirrors the IRS Form 706 method in a simplified form.

Work through a sample estate:

• Estate value: enter the fair market value of all assets, such as $18,000,000.
• Deductions: add debts, funeral expenses, and any charitable bequests — say $500,000 to charity.
• Filing year: select the year of death so the correct exemption applies.
• Spouse and state: check the marital box if assets pass to a spouse, and add a state rate if you live in a taxing state.

The tool then subtracts the exemption from the taxable estate and applies the 40% top rate. Treat the output as a planning estimate, not filed tax advice — a qualified estate attorney should confirm the final figure.

In most cases, heirs receiving a U.S. inheritance owe no federal income tax on the money itself. The IRS does not treat an inheritance as taxable income to the beneficiary, and there is no federal inheritance tax.

Several situations still create a tax bill, however:

• State inheritance tax — a handful of states tax the heir directly, with the rate often tied to the heir's relationship to the deceased.
• Inherited retirement accounts — distributions from a traditional IRA or 401(k) are generally taxable as ordinary income when withdrawn.
• Income earned after death — interest, dividends, or rent generated by inherited assets is taxable going forward.

The Consumer Financial Protection Bureau (CFPB) encourages heirs to review account types carefully before spending, because a lump sum from a tax-deferred account can trigger a substantial income-tax event.

The gross estate includes nearly everything the decedent owned or controlled at death, valued at fair market value. The IRS defines this broadly to prevent assets from escaping the estate tax base.

Commonly included items are:

• Real estate, including a primary home, rental property, and land.
• Financial accounts — bank, brokerage, retirement, and cash.
• Business interests, partnerships, and closely held company shares.
• Life insurance proceeds if the decedent owned the policy (a common surprise).
• Personal property such as vehicles, art, jewelry, and collectibles.

Assets held in certain irrevocable trusts may fall outside the gross estate, which is why trust planning is central to reducing exposure. Because valuation drives the entire calculation, the IRS often requires qualified appraisals for real estate, business interests, and unique collectibles.

Portability allows a surviving spouse to add the deceased spouse's unused exemption to their own, potentially doubling the amount shielded from federal estate tax. The IRS calls this transferred amount the Deceased Spousal Unused Exclusion, or DSUE.

Key points to understand:

• It is not automatic — the executor must elect portability by filing Form 706 for the first spouse's estate, even when no tax is due.
• Deadline sensitivity — the election must be made within the IRS filing window, so acting promptly matters.
• Combined shelter — with a valid election, a couple can protect roughly two individual exemptions in total.

Portability applies only to the federal exemption; state estate-tax exemptions generally are not portable. Because a missed election can forfeit millions in shelter, confirm the current IRS procedure before assuming the exemption carries over.

A step-up in basis resets an inherited asset's tax cost to its fair market value on the date of death, erasing capital gains that built up during the owner's lifetime. The IRS applies this adjustment to most assets passing through an estate.

The benefit works like this:

• Original owner buys stock for $100,000 that grows to $500,000.
• At death, the heir's cost basis "steps up" to $500,000.
• If the heir sells at $500,000, there is little or no taxable capital gain.

Without this rule, the heir could owe capital-gains tax on the full $400,000 of appreciation. The U.S. Securities and Exchange Commission (SEC) notes that basis records are essential for calculating gains, so heirs should document the date-of-death value promptly. Note that assets gifted during life generally carry over the original basis instead.

The most common mistake is confusing federal estate tax with state inheritance tax and assuming one calculator covers both. They are separate systems with different payers, thresholds, and rules, and the IRS governs only the federal side.

Watch for these frequent errors:

• Using an outdated exemption — the figure changes yearly for inflation; check the current IRS amount for the year of death.
• Forgetting state taxes — several states impose estate or inheritance tax with far lower thresholds than the federal exemption.
• Omitting life insurance — policies the decedent owned are usually pulled into the gross estate.
• Ignoring the marital deduction — assets passing to a U.S. citizen spouse are generally fully deductible.
• Treating estimates as filings — a calculator cannot replace a Form 706 prepared with professional guidance.

The Consumer Financial Protection Bureau (CFPB) recommends consulting a qualified estate attorney or tax professional before making irreversible transfers.