The estate tax is a federal tax on the transfer of a deceased person’s property, charged to the estate rather than to the people who inherit. A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States (26 U.S.C. 2001(a)).
Read the subject of that sentence. What is taxed is the transfer, and what it is measured on is the taxable estate. Neither the heirs nor the assets themselves are the taxpayer, which is the difference between this tax and an inheritance tax and the reason a beneficiary’s own circumstances change nothing about the amount.
It sits in chapter 11 of subtitle B, which title 26 heads Estate and Gift Taxes. Chapter 12 of that subtitle carries the gift tax, imposed on the transfer of property by gift (26 U.S.C. 2501), and chapter 13 carries the tax on generation-skipping transfers (26 U.S.C. 2601). One transfer can be reached by more than one of the three, and the other two are set out in gift tax and generation-skipping transfer tax.
The Computation Reaches Back Into a Lifetime
The estate tax is not computed on death-time property alone. The tax imposed by this section shall be the amount equal to the excess, if any, of a tentative tax computed under subsection (c) on the sum of the amount of the taxable estate and the amount of the adjusted taxable gifts, over the aggregate amount of tax which would have been payable under chapter 12 with respect to gifts made by the decedent after December 31, 1976, if the modifications described in subsection (g) had been applicable at the time of those gifts (26 U.S.C. 2001(b)).
That is a two-step, and both steps are load bearing. Lifetime gifts are added back into the base so that the rate schedule is applied to the whole of what a person gave away and left. Then the gift tax that would have been payable on those gifts is subtracted, so the same transfers are not charged twice.
The add-back has a definition attached to it, and the definition has a carve-out. For purposes of paragraph (1)(B), the term adjusted taxable gifts means the total amount of the taxable gifts, within the meaning of section 2503, made by the decedent after December 31, 1976, other than gifts which are includible in the gross estate of the decedent (26 U.S.C. 2001(b)). Gifts already inside the gross estate are excluded from the add-back, because they are being counted once already.
The rate schedule the tentative tax runs on is at 26 U.S.C. 2001(c), and its top line is quoted in generation-skipping transfer tax, where it does the work of setting that chapter’s applicable rate.
The Gross Estate Is Deliberately Wide
The starting figure is written to sweep rather than to list. The value of the gross estate of the decedent shall be determined by including, to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated (26 U.S.C. 2031(a)).
Note the qualifier in the middle. It includes property only to the extent provided for in this part, so the sweep is delivered by the sections that follow rather than by this one alone. The first of those is a single sentence and it does most of the work. The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death (26 U.S.C. 2033).
“Wherever situated” is the phrase that catches practitioners out on a resident decedent with property abroad. It was not always there in that form: a 1962 amendment struck out provisions which excepted real property situated outside of the United States (26 U.S.C. 2033, editorial notes).
Whether a decedent is a resident for this purpose is not the income tax question and is not answered by counting days. It turns on domicile, and the test is set out in domicile.
Valuation is the other half of the gross estate, and the standard is worked through in valuation. The statute supplies one special rule of its own for shares with no market. In the case of stock and securities of a corporation the value of which, by reason of their not being listed on an exchange and by reason of the absence of sales thereof, cannot be determined with reference to bid and asked prices or with reference to sales prices, the value thereof shall be determined by taking into consideration, in addition to all other factors, the value of stock or securities of corporations engaged in the same or a similar line of business which are listed on an exchange (26 U.S.C. 2031(b)). Comparables are a factor the statute requires, not the answer on their own.
The Taxable Estate Is What Is Left After the Deductions
One sentence connects the two figures. For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the deductions provided for in this part (26 U.S.C. 2051).
The opening scope words matter. This definition is written for the tax imposed by section 2001, so a taxable estate figure computed for some other purpose is not this one.
The Unified Credit Is a Credit, Not an Exemption
This is the part almost every summary states wrongly, and the statutory shape is the reason. A credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by section 2001 (26 U.S.C. 2010(a)). Nothing is exempted from the base. A tax is computed on the whole and then a credit is applied against it.
The credit is defined by working the rate schedule backwards. For purposes of this section, the applicable credit amount is the amount of the tentative tax which would be determined under section 2001(c) if the amount with respect to which that tentative tax is to be computed were equal to the applicable exclusion amount (26 U.S.C. 2010(c)(1)). That is why the figure everyone quotes is an exclusion amount rather than a credit amount: the exclusion is the input, and the credit is what the schedule turns it into.
The exclusion has two components, not one. For purposes of this subsection, the applicable exclusion amount is the sum of the basic exclusion amount and, in the case of a surviving spouse, the deceased spousal unused exclusion amount (26 U.S.C. 2010(c)(2)).
The basic component is a statutory figure that then moves. For purposes of that subsection the basic exclusion amount is $5,000,000 (26 U.S.C. 2010(c)(3)(A)), and in the case of any decedent dying in a calendar year after 2011 that dollar amount is increased by the cost-of-living adjustment determined under section 1(f)(3) for that calendar year, computed by substituting calendar year 2010 for calendar year 2016, with any adjusted amount that is not a multiple of $10,000 rounded to the nearest multiple of $10,000 (26 U.S.C. 2010(c)(3)(B)). A further subparagraph doubles the base for a window: in the case of estates of decedents dying or gifts made after December 31, 2017, and before January 1, 2026, subparagraph (A) shall be applied by substituting $10,000,000 for $5,000,000 (26 U.S.C. 2010(c)(3)(C)).
Never quote any of those three figures as a current exclusion. They are the base and the mechanics, read here from the 2024 edition of the Code, and they have been amended since. The figure actually in force for a year of death comes from the revenue procedure that sets it, and the current one is quoted in gift tax exclusion and in generation-skipping transfer tax.
Portability Is an Election, and It Can Be Lost
The second component of the exclusion only exists if somebody files for it. For purposes of that subsection, with respect to a surviving spouse of a deceased spouse dying after December 31, 2010, the term deceased spousal unused exclusion amount means the lesser of the basic exclusion amount, or the excess of the applicable exclusion amount of the last such deceased spouse of the surviving spouse over the amount with respect to which the tentative tax is determined under section 2001(b)(1) on the estate of that deceased spouse (26 U.S.C. 2010(c)(4)).
Two details in that sentence decide real cases. It is the lesser of two amounts, so an unused exclusion carried over can never exceed the basic exclusion amount itself. And it is the last such deceased spouse, so remarrying and outliving a second spouse replaces the figure rather than adding to it.
The election is the trap. A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse unless the executor of the estate of the deceased spouse files an estate tax return on which that amount is computed and makes an election on that return that the amount may be so taken into account, that election once made is irrevocable, and no election may be made if the return is filed after the time prescribed by law, including extensions, for filing it (26 U.S.C. 2010(c)(5)(A)). A first estate that owed nothing still had to file to preserve the exclusion, and a late return closes the door on its face.
The Secretary’s reach into that return is longer than the ordinary assessment window. Notwithstanding any period of limitation in section 6501, after the time has expired under section 6501 within which a tax may be assessed under chapter 11 or 12 with respect to a deceased spousal unused exclusion amount, the Secretary may examine a return of the deceased spouse to make determinations with respect to that amount for purposes of carrying out this subsection (26 U.S.C. 2010(c)(5)(B)).
Common Questions
No. The federal charge is imposed on the transfer of the taxable estate of the decedent (26 U.S.C. 2001(a)), and the credit against it is allowed to the estate (26 U.S.C. 2010(a)). An inheritance tax is charged to the person receiving, and no federal inheritance tax appears anywhere in chapter 11.
Yes, twice over. Adjusted taxable gifts are added to the taxable estate before the tentative tax is computed, and the gift tax that would have been payable on them is then subtracted from the result (26 U.S.C. 2001(b)). Gifts already includible in the gross estate are left out of the add-back (26 U.S.C. 2001(b)).
No. It requires an estate tax return for the first estate on which the amount is computed and an election made on that return, the election is irrevocable, and it cannot be made on a return filed after the time prescribed by law including extensions (26 U.S.C. 2010(c)(5)(A)).
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