How the federal estate tax is calculated
Tentative tax = rate schedule on (taxable estate + adjusted taxable gifts)
Estate tax = tentative tax − gift tax payable on those gifts − applicable credit
Applicable credit = rate schedule on ($15,000,000 + DSUE)
The tax runs through a single rate schedule (18% up to 40%) on everything given away during life and at death. The applicable credit wipes out the tax on the first $15,000,000 for deaths in 2026, plus any unused exclusion from a late spouse. So in practice, the amount above the exclusion is taxed at 40%.
Unified rate schedule (IRC 2001(c))
| Amount over | Not over | Tax |
|---|---|---|
| $0 | $10,000 | 18% |
| $10,000 | $20,000 | $1,800 + 20% of the excess |
| $20,000 | $40,000 | $3,800 + 22% |
| $40,000 | $60,000 | $8,200 + 24% |
| $60,000 | $80,000 | $13,000 + 26% |
| $80,000 | $100,000 | $18,200 + 28% |
| $100,000 | $150,000 | $23,800 + 30% |
| $150,000 | $250,000 | $38,800 + 32% |
| $250,000 | $500,000 | $70,800 + 34% |
| $500,000 | $750,000 | $155,800 + 37% |
| $750,000 | $1,000,000 | $248,300 + 39% |
| $1,000,000 | – | $345,800 + 40% |
Worked example
A single person dies in 2026 with a $20,000,000 estate and no deductions or lifetime gifts.
- Tentative tax: $345,800 + 40% × $19,000,000 = $7,945,800
- Applicable credit: $345,800 + 40% × $14,000,000 = $5,945,800
- Estate tax: $2,000,000, which is 40% of the $5,000,000 above the exclusion.
If a late spouse left $5,000,000 of unused exclusion (DSUE) through a portability election, the exclusion becomes $20,000,000 and no tax is due.
Portability and DSUE
When a married person dies, the executor can elect on a timely filed Form 706 to pass the unused part of the exclusion to the surviving spouse. That deceased spousal unused exclusion (DSUE) is added to the survivor's own exclusion. It comes from the most recently deceased spouse only, and can't exceed the basic exclusion amount.
What this leaves out
- State estate and inheritance taxes are separate. Several states tax estates far smaller than $15,000,000, and a few tax heirs on what they inherit. The federal deduction for state death taxes isn't included; add it to debts and expenses if it applies.
- Valuation rules, life insurance ownership, trusts, the generation-skipping transfer tax, and foreign death tax credits.
- Lifetime taxable gifts means gifts after 1976 above the annual exclusion. DSUE is capped at the basic exclusion in the year your spouse died.
- Gift tax payable is taken as you enter it. Strictly, it's recomputed at today's rates (IRC 2001(g)), which can differ for very old gifts.
- The marital deduction assumes a US citizen spouse. Bequests to a non-citizen spouse need a qualified domestic trust.
Sources
- IRS: What's new – estate and gift tax – $15,000,000 basic exclusion for 2026; portability
- IRS Rev. Proc. 2025-32 – §2.14: basic exclusion increased to $15,000,000 for 2026; $19,000 annual gift exclusion
- 26 U.S.C. 2001 (estate tax rate schedule) – rate schedule and computation
- 26 U.S.C. 2010 (unified credit, portability) – applicable credit and DSUE
- Form 706 and instructions – estate tax return and portability election