When someone dies and transfers physical and monetary assets to their heirs, those assets may be subject to an estate tax. A vast majority of Americans won’t have to worry about paying estate taxes. The federal estate tax exemption in 2023 is $12.92 million, so unless you are leaving your heirs property, cash, stocks, and other assets with a fair market value greater than that amount, your heirs won’t have to worry about estate taxes.
For wealthy taxpayers whose estate valuations are greater than the federal exemption limits for single and married taxpayers, you’ll still only pay estate taxes on any amount greater than the exemption level. Let’s take a look at how estate taxes are reported to the Internal Revenue Service if they are applicable to your estate.
Federal Estate Tax Rates
As noted, the federal estate tax exemption in 2023 is $12.96 million, which doubles to $25.84 million for married couples. Taxes on any amounts greater than those exemption limits are levied when you die and your estate is passed on to the heirs of your choosing.
Those limits were greatly pushed up in 2017 with the passing of the Tax Cuts and Jobs Act. Prior to 2017, the exemption was $5.49 million – and those high limits are poised to “sunset” in 2025 and revert back to $5.49 million ($10.98 million for married couples).
If the value of your estate exceeds the federal exemption, here are the rates at which your estate will be taxed (again, only on amounts exceeding the federal exemption):
|
Tax Rate |
Amount subject to taxation |
Estate taxes you’ll have to pay |
|
18% |
$0 - $10,000 |
18 percent of taxable amount |
|
20% |
$10,001 - $20,000 |
$1,800, plus 20% on any amount above $10,000 |
|
22% |
$20,001 - $40,000 |
$3,800, plus 22% on any amount above $20,000 |
|
24% |
$40,001 - $60,000 |
$8,200, plus 24% on any amount above $40,000 |
|
26% |
$60,001 - 80,000 |
$13,000, plus 26% on any amount above $60,000 |
|
28% |
$80,001 - $100,000 |
$18,200, plus 28% on any amount above $80,000 |
|
30% |
$100,001 - $150,000 |
$23,800, plus 30% on any amount above $100,000 |
|
32% |
$150,001 - $250,000 |
$38,300, plus 32% on any amount above $150,000 |
|
34% |
$250,001 - $500,000 |
$70,800, plus 34% on any amount above $250,000 |
|
37% |
$500,001 - $750,000 |
$155,800, plus 37% on any amount above $500,000 |
|
39% |
$750,001 - $1,000,000 |
$248,300, plus 39% on any amount above $750,000 |
|
40% |
$1,00,001 and higher |
$345,800, plus 40% on any amount above $1 million |
Source: Internal Revenue Service1
Now that you have an idea of what your tax liability might be if you do have to pay estate taxes, let’s jump into how they are filed with the IRS.
What You Need to Know About Filing Estate Taxes
Upon your death, the executor of your estate is responsible for filing any estate taxes you may owe.
Taxes are assessed on the full taxable amount of your estate, regardless of how your estate is distributed among your heirs. Your executor will file estate taxes with the Internal Revenue Service using Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return. The form will help the executor determine how much tax liability is levied on your estate according to rates denoted on the table above. The executor will first have to determine the gross value of your estate, though, which is too lengthy a topic to get into here.
Once Form 706 is complete, you’ll have to mail it to one of the following addresses within nine months after the date of the decedent’s passing (unless you file an extension – Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes will give your executor another six months to file.):
- Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999
If you use a company like UPS or FedEx to mail in your Form 706, it will go to the following address:
- Internal Revenue Submission Processing Center
333 W. Pershing Road
Kansas City, MO 64108
Putting it all Together
If you die and your estate exceeds the current federal exemption limit of $12.96 million in 2023, you’ll owe estate taxes on any amount greater than that exclusion amount. The tax rates levied against your estate are included in this article.
The executor of your estate will need to complete Form 706 and mail it to the IRS within nine months of your death. Determining the gross value of your estate at fair market value can be complex and will likely require expert insight – plan accordingly with your estate and taxation professionals.
1 Instructions for Form 706, Table A – Unified Rate Schedule, IRS.gov, https://www.irs.gov/instructions/i706#en_US_202209_publink1000286480
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Costs associated with a 1031 transaction may impact investor's returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.
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