Overview: The estate and gift tax is a very small slice of the revenue pie, accounting for only 1% of Federal revenues, and impacts only a tiny percentage of Americans due to an $11.2 million exemption.
- The federal estate tax is applied to property transferred at death minus exemptions and allowable deductions.
- Most Americans Exempt: The large exemption amount — effectively $11.2 million for 2018 — exempts nearly all Americans except the wealthiest from the estate tax. The exemption amount is adjusted annually for inflation.
- Property transferred to spouse exempt: An unlimited marital deduction is allowed for property transferred to a surviving spouse.
- 40% Tax Rate: A 40% tax rate is applied to property transferred at death — but only to property in excess of the $11.2 million exemption amount and after applying allowable deductions.
- Allowable deductions include estate administration expenses and charitable bequests.
- Gift Tax: The federal gift tax operates alongside the estate tax to prevent individuals from avoiding the estate tax by transferring property to heirs before dying. For 2018, the first $15,000 of gifts from one individual to another is excluded from taxation and does not apply to the lifetime exemption. However, any amount over this annual exclusion lowers the effective lifetime estate tax exemption.
Nonpartisan Reports on the Estate Tax
- CRS: Recent Changes in the Estate and Gift Tax.
- TPC: Who Pays the Estate Tax 2017?
- CBPP: Repealing Federal Estate Tax Would Likely Deprive States of Needed Revenues – May 2017
- Lily Bathchelder, NYU Law School: The Silver Spoon Tax – How to Strengthen Wealth Transfer Taxation – Oct 2016
- USDA: Only 0.4% of farm operator estates owed estate tax in 2015
- JCT: Cost of Repealing the Estate Tax – March 2015
- JCT: History, Present Law, and Analysis of the Federal Wealth Transfer System – March 2015
- CBO: Effects of the Federal Estate Tax on Farms and Small Businesses – July 2005
US Farms Subject to Estate Tax (2016)