Taxes What Is the Current Estate Tax Limit, Rate, and Exemption? By Joshua Kennon Joshua Kennon Joshua Kennon is an expert on investing, assets and markets, and retirement planning. He is the managing director and co-founder of Kennon-Green & Co., an asset management firm. learn about our editorial policies Updated on December 3, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by Lars Peterson In This Article View All In This Article Changes in Estate Tax Over Time The Lifetime Gift Tax Exemption Estate Tax Rate Varies by Amount Using Lifetime Gift Tax Exclusion State Estate Taxes Vary Frequently Asked Questions (FAQs) Photo: ljubaphoto / Getty Images The estate tax is a tax on an individual's right to transfer property upon your death. And to find the amount due, the fair market values of all the decedents' assets as of death are added up. The exclusion for tax year 2022 is $12.06 million. For 2023, the exclusion amount is $12.92 million. Any funds after that will be taxed as they pass on to heirs, at a rate that varies by the amount being passed on. Learn how the estate tax has changed over time, the impact it has, and how it can impact you at tax time. Key Takeaways The estate tax is a tax on property left after you die.For tax year 2022, your estate will be taxed if the total of the gross assets at hand exceeds $12.06 million ($12.92 million for tax year 2023).The estate tax exemption is related to the gift tax exemption.In addition to federal estate taxes, many U.S. states levy estate taxes (with the amount varying per state), as well. Changes in Estate Tax Over Time The amount an estate can pass on before facing taxes is known as the "lifetime gift tax exemption." The chart below shows how the lifetime gift tax exemption grew between 2000 and 2023. As you can see, the biggest leap occurred in 2018, after the Tax Cuts and Jobs Act (TCJA) took effect. The Estate Tax Is Tied to the Lifetime Gift Tax Exemption The lifetime gift tax exemption most commonly comes into play in scenarios of estate and inheritance, but that isn't the exemption's only application. Note For tax year 2022, you can give a person $16,000 every year without having to report your gift. Amounts more than that must be reported, and count against the lifetime exemption, but you do not have to pay taxes on those amounts. (There are exceptions to this rule, such as in cases of tuition and college expenses, where there are no limits.) For tax year 2023, the exemption amount is $17,000. If you are married, you and your spouse can combine your exemptions. If you want to give more than the annual exemption amount, you can pay the tax on the gift, or you can use part of your lifetime gift tax exclusion allowance. Let's say you and your spouse gave your child $100,000 in 2022. Of the total gift, $68,000 would be subject to the gift tax. However, you could include it as part of your lifetime gift tax exclusion allowance and avoid paying any taxes. Estate Tax Rate Varies by Amount You may have read that the federal estate tax rate is 40%. However, that isn't the whole story. That 40% rate is the top tax rate, and it only applies to families leaving behind more than $1 million—after accounting for the lifetime gift tax exclusion. The lowest tax rate, for estates valued just beyond the exclusion amount, is 18%. Benefits To Using Lifetime Gift Tax Exclusion Early Some families may find that it makes sense to begin taking lifetime gift tax exclusions well before they die and bequeath their entire estate. Doing so can give the assets time to grow through dividends, interest, and rents within their portfolio. Note It's best to speak to a financial planner or advisor with a history of satisfactory rates of returns on assets about how to best transfer wealth to heirs. You may also be able to make use of liquidity discounts in family limited partnerships, for example, or discounted family loans at the lowest applicable Treasury rate. Done correctly, a family can minimize the tax burden while building wealth to pay off any taxes that may be due at the time of the estate transfer. State Estate Taxes Vary The figures so far have dealt with the federal estate tax. However, some individual states impose estate and/or inheritance tax, as well. The following states and entities have an estate tax in place: WashingtonOregonMinnesotaIllinoisNew YorkMassachusettsRhode IslandConnecticutMaineMarylandVermontWashington, D.C. Note The rate at which a state can impose the estate tax varies depending on the state. In Maryland, for example, an estate is subject to a tax of up to 16% if its gross value is at least $5 million. Some states, on the other hand, have an inheritance tax in place. It is similar to an estate tax, but the burden usually falls on the one receiving the money rather than upon the estate itself. The following states have an inheritance tax: NebraskaIowaKentuckyPennsylvaniaNew JerseyMaryland Check with your state and local government to find out what regulations they have in place regarding estate and inheritance taxes. Frequently Asked Questions (FAQs) What is the 2022 federal estate tax? The lowest estate tax rate for 2022 is 18%, rising progressively to 40% for taxable estates of more than $1 million. Note that these rates apply to amounts that exceed the lifetime estate tax exclusion of $12.06 million. The exclusion amount climbs to $12.92 million for tax year 2023. What is the threshold for federal estate tax? For tax year 2022, the threshold for federal estate tax is $12.06 million. The threshold rises to $12.92 million in 2023. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Estate Tax." IRS. "Instructions for Form 706." IRS. "Frequently Asked Questions on Gift Taxes." The Tax Foundation. "Does Your State Have an Estate or Inheritance Tax?" Comptroller of Maryland. "Estate and Inheritance Tax Information." IRS. “IRS Provides Tax Inflation Adjustments for Tax Year 2023.”