Ultra-rich individuals set to benefit from an expanded posthumous tax reduction under the latest fiscal law
The One Big Beautiful Act (OBBA), signed into law by President Donald Trump in 2017, has brought about a substantial change in the federal estate and gift tax landscape. The act has increased the exemption levels, resulting in a reduced number of estates being affected by the federal estate tax.
Historically, the federal estate tax has only applied to a small fraction of estates, thanks to relatively high exemptions. For instance, under the 2017 Tax Cuts and Jobs Act, the exemption was approximately $13.99 million per person, and very few estates were affected. With the new exemptions being even higher, it is expected that the number of estates impacted by the federal estate tax will remain low.
As of 2026, the exemption level for single filers will increase to $15 million, and for married couples, it will rise to $30 million. This means that only a small percentage of estates, specifically those exceeding these thresholds, will be subject to the federal estate tax.
The initial portion above the exemption level is taxed at 18%, with subsequent portions taxed at higher rates up to 40%. For amounts exceeding $1 million above the exemption, the rate is 40%. This indicates that while the federal estate tax will still apply to large estates, the number of estates affected will be relatively small compared to the total number of estates in the United States.
The share of estates subject to the estate tax was expected to rise to 0.2% in 2026, but this won't happen due to the increased exemption level. It's important to note that as of this year, 12 states and the District of Columbia have an estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington. The exemption levels and tax rates imposed vary from state to state. For example, in Massachusetts, the exemption level is $2 million, and the tax rate can be as high as 16%.
The US federal estate tax exemption level was set at $675,000 in 2000, and the top rate of 40% is significantly lower than the 55% top rate that applied in 2001. Raising the federal estate tax exemption level to $15 million per person is expected to further reduce the already low share of estates subject to the estate tax. In 2021, this means a tax-free exemption of up to $27.98 million for couples.
It's worth mentioning that the exemption level is effectively doubled for married couples due to the ability to pass unused exemption to the surviving spouse. The Joint Committee on Taxation estimates that the changes made by the OBBA will reduce federal revenue by nearly $212 billion over the next decade.
In conclusion, the increased federal estate and gift tax exemptions are expected to significantly reduce the number of estates affected by the federal estate tax compared to previous years. However, exact figures on the number of estates affected by the federal estate tax in 2026 are not available at this time.
The increased federal estate tax exemption levels, as a result of the OBBA, have led to a decline in the number of businesses and estates being impacted by the tax. As of 2026, only a small percentage of estates with values exceeding $15 million for single filers and $30 million for married couples will be subject to the federal estate tax.
Finance experts anticipate that the altered tax landscape will result in reduced revenue from the federal estate tax, with the changes made by the OBBA predicted to lower federal revenue by nearly $212 billion over the next decade.
