How the Federal Estate Tax Exemption Changed from 1997 to Today

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Because of continually increasing exemptions, the number of estates filing a return on their taxes has decreased by 94% in the past two decades.

The number of estate tax returns that were filed in 2001 is 17 times more than in 2021, according to the Tax Policy Center. That number has decreased so rapidly because the federal government continues to over more generous estate tax exemptions.

The exemption allows estates under a certain value to pass property to heirs tax-free. The estate tax law has changed five times since 2001, raising the exemption significantly from its original $675,000 threshold.

Key Takeaways

  • Estates are taxed if they are above the threshold set by the IRS exemption rules. Only the value above the threshold is taxed.
  • Exemptions can be ported over to a surviving spouse because presumably, they will inherit most of the estate and then pass it on to the next generation when they die.
  • The estate tax law has changed a number of times in the last two decades, resulting in a high exemption threshold for 2022 and 2023.

How the Exemption Works

Estates valued at or above the exemption amount are required to pay the tax. Even then, only the value over the exemption threshold is taxable.

The 2022 exemption is $12.06 million, up from $11.7 million in 2021. The first $12.06 million of your estate is therefore exempt from taxation. Your estate wouldn't be subject to the federal estate tax when it is filed in 2023 if it's worth $12.059 million and you were to die in 2022.

The exemption is indexed for inflation, so it tends to increase most years, even when tax legislation doesn't affect it. In the 2023 tax year, that threshold will increase to 12.92 million. Most of the value of an estate over the threshold is taxed at 40%.


The estate tax remains a very progressive tax because it is paid by only the wealthiest households.

The Exemption Is Portable

The government also allows your estate to transfer any unused portion of your exemption to your spouse if you're married. This provision is referred to as "portability."

For example, you would have $6.06 million of your exemption "left over" in 2022 if your estate were worth $6 million because the exemption threshold is $12.06 million. You could effectively give this portion of the exemption to your spouse, increasing their exemption by that amount when they die.

Presumably, your spouse will inherit most, if not all, of your $6 million in property, so this allows them to pass that property to heirs tax-free at the time of their own death. The estate is also entitled to an exemption in the year your spouse dies, and your unused exemption is added to that amount.


Your estate must file an estate tax return to let the Internal Revenue Service know that you're making this transfer, even though no taxes are due. 

History of Federal Estate Tax Laws

The landmark Taxpayer Relief Act of 1997 called for a gradual increase in the estate exemption from $600,000 in 1997 to $1 million by 2006. This set the stage for greater increases in years to come.

Estate taxes from 2010 through 2012 were based on the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act that was signed into law by President Obama on Dec. 17, 2010, but the law was only good for two years. It was supposed to expire on Dec. 31, 2012, so the federal estate tax exemption and rate would have defaulted to the previous number that was in effect.

This didn't happen. Congress passed the American Taxpayer Relief Act (ATRA) on Jan. 1, 2013, and President Obama signed it into law on Jan. 2, 2013. ATRA was intended to make permanent changes to the laws governing federal estate taxes, gift taxes, and generation-skipping transfer taxes. 

Fast-forward to President Trump, who signed the Tax Cuts and Jobs Act (TCJA) in December 2017. The exemption had been only $5.49 million in 2017. The TCJA more than doubled that to $11.18 in 2018.

Tax Exemptions and Rates Over the Years

Here's how the estate tax has been assessed down over the years: 

Year Estate Tax Exemption Top Estate Tax Rate
1997 $600,000 55%
1998 $625,000 55%
1999 $650,000 55%
2000 $675,000 55%
2001 $675,000 55%
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $5,000,000 or $0 35% or 0%
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%
2015 $5,430,000 40%
2016 $5,450,000 40%
2017 $5,490,000 40%
2018 $11,180,000 40%
2019 $11,400,000 40%
2020 $11,580,000 40%
2021 $11,700,000 40%
2022 $12,060,000 40%

The heirs of decedents who died in 2010 had a choice. They could use the $5 million estate exemption at the 35% estate tax rate, or they could elect to use the $0 estate tax exemption at a 0% tax rate, coupling the use of modified carryover basis rules.

The Exemption Can Decrease After 2025

The TCJA is not permanent. It is slated to expire after 2025, and the exemption amount can revert to its pre-2018 level at that time unless Congress acts to renew the legislation or even some of its provisions.

Frequently Asked Questions (FAQs)

When is federal estate tax due?

The federal estate tax is due nine months after the person dies. There is a six month extension that can be requested under certain circumstances.

How do I avoid the federal estate tax?

A very small number of estates even qualify to pay the estate tax. Many people put money in trusts, gift money and make charitable donations to lower their federal estate tax bill.

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  1. Tax Policy Center. "Number of Estate Tax Returns."

  2. Tax Policy Center. "Briefing Book: Key Elements of the U.S. Tax System."

  3. IRS. "Estate Tax."

  4. IRS. "Instructions for Form 706."

  5. Public Law. "PL 105-34 Taxpayer Relief Act of 1997," Page 59.

  6. "H.R.4853 — 111th Congress (2009-2010)."

  7. “H.R.8 - American Taxpayer Relief Act of 2012.”

  8. Institute on Taxation and Economic Policy. "The Federal Estate Tax: An Important Progressive Revenue Source," Page 4.

  9. Internal Revenue Service. “What's New - Estate and Gift Tax.”

  10. Internal Revenue Service. ”Instructions for Form 706,” Page 1.

  11. IRS. "Filing Estate and Gift Tax Returns."

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