When a person dies and the transfer of estate happens, the estate tax is applied to the estate when the estate value crosses the limit. The agency announced the IRS Estate tax exemption for the tax year 2024 earlier, taxpayers should know the exemptions to fulfill their tax liabilities.
IRS Estate Tax Exemption 2025
The federal government takes estate taxes when the estate of a person who dies gets transferred to the heir or the appointed person/ organization. The federal law sets the exclusion limit, which helps taxpayers determine whether they have to pay estate taxes or not. The exclusion limit depends on the value of the estate.
The government understands the concerns of citizens on estates with less value, so the IRS sets the exemption limit for estate taxes to ensure it does not create issues for small estate investors. The IRS first introduced the estate and gift exemption in 2011 to ensure that people below the poverty line will not be subjected to taxes when they inherit an estate.
The federal government has increased the annual Estate tax exemption every year. For the 2024 tax year, the IRS has announced the $13,610,000 Estate tax exemption amount based on inflation. Recently, the IRS has unveiled the inflation adjustment for the 2025 tax year, where the exemption amount is boosted up to $13.99 million for people who take over the estate of a person who died in 2025.
The married couple can expect the estate tax exemption to double the amount applicable to individuals. For 2025, the exemption amount is increased to $27.98 million from the 2024 amount of $27.22 million.
How does Estate Tax work in the US?
The IRS estate tax depends on the combined gross estate and taxable gifts that exceed the exemption amount. As we have discussed above, the estate tax exemption amount for 2024 is $13.61 million and it will be $13.99 million for the transfer of property of a person who died in 2025.
So, if the estate value increases the exemption amount, the person getting the estate in their name will need to pay the taxes. The federal law has several deductions and credits that may help in reducing the tax bills, however, the inheritor should understand they have to pay the taxes based on the estate tax rate established for every $10,000 increase.
The US citizen should also understand that some US states have their own estate or inheritance taxes, so you should check that as well.
Federal Estate Tax Rates 2025
As we have mentioned, people who are receiving the estate as an inheritance from a person who died would be subject to estate tax if the estate’s worth is above the exemption amount. The estate’s worth is increasing which means most of the people who are under the estate tax are wealthy people and acquiring the large-value estate.
The taxpayers have to pay the taxes based on the amount exceeding the exemption amount of $10,000. The estate tax rate begins from 18% for estates worth exceeding the exemption amount by $10,000. So, if you are inheriting an estate and its worth is above $13.61 million from a person who dies in 2024 or $13.99 million for a person who dies in 2025 should mark the below tax rates to complete their tax liability:
Taxable Amount (Estate exceeding $13.61 Million for 2024/ $13.99 million for 2025) | Tax rate |
$0 – $10000 | 18% |
$10,001 – $20,000 | 20% |
$20,001 – $40,000 | 22% |
$40,001 – $60,000 | 24% |
$60,001 – $80,000 | 26% |
$80,001 – $100,000 | 28% |
$100,001 – $150,000 | 30% |
$150,0001 – $25,000 | 32% |
$250,001 – $500,000 | 34% |
$500,001 – $750,000 | 37% |
$750,001 – $1 million | 39% |
Above $1 million | 40% |
Taxpayers whose estate value goes above the exemption amount by 1 million have to pay the taxes on the estate with a tax rate of 40%.
Supplemental documents with Federal Estate tax Return
The taxpayers who fall under the tax bracket for Estate tax returns should submit their return with the following supporting document:
- If you have inherited the estate through the descendant’s will, then the copy of the will.
- If the estate is subjected to foreign tax, copies of returns are filed in the foreign estate, inheritance, and other death tax act.
- Copies of claims against the estate inventory of property liabilities, expenses filed in the foreign court, or proper transfer of the estate certified by the legal authorities.
How to file Estate taxes?
The inheritors who receive the estate or property from a person who dies in the concerned tax year should submit Form 706 through the executor or administrator of the estate to complete the tax obligations related to the estate before gaining ownership over the estate.
The administrator will need to fulfill the tax obligations (if any)of the dead person before it can be transferred to the inheritor. The estate tax should be filed within nine months after the death of the descendant and report the estate inheritance. People who forget or are unable to file the due date can request a six-month automatic extension through Form 4768 from the date you have requested the extension.
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The estate taxes are filed to the Department of Treasury, IRS Kansas City, however, the address can be changed if you are filing an amended Form, the executor is suing PDS, or PDS for amended Form 706. The taxpayers can pay the applicable estate taxes either by paper check or through the EFTPS, the free service of the US Treasury Department.
The executor has the responsibility of filing the estate return and if there is more than one executor, then all listed executors will be responsible for the tax return, if not they will be subjected to penalties.