Updated for 2018

The Federal Estate Tax is a tax on every taxable item that a decedent leaves to his or her heirs. It applies to every United States citizen across the board but does have some exceptions, depending on the specific case. In the past few years, the tax has been changed and updated a few different times with some important changes.

All Citizens Are Potentially Subject to Tax

“Every citizen of the United States is subject to having his or her assets taxed once they are to be passed on through inheritance,” observes tax attorney John McDuff of Austin, Texas.  However, it must be noted that small estates usually will never have to file for estate tax. This is because the law only requires a tax filing if the estate’s gross worth is valued at a certain amount as listed below:

  • 2017, $5.49 Million
  • 2016, $5.45 Million
  • 2015, $5.43 Million

This results in only a small percentage of United States estates that are required to file Federal Estate Tax, somewhere around 1 percent. But those estates subject to the tax are subject to a potentially high rate of 40%.

Determining the Tax

There is a very specific and simple formula for determining the tax on an estate. First, the entire estate’s value is calculated, using a fair market value formula for each item. This means that the price paid for the item is not important, rather the value of the item according to the market.

Once this figure is determined, the law allows for certain exemptions or deductions from this number before the final tax is assessed. Below are some common deductions that are permitted. After they are subtracted, the final total will be the net.

1. Marital Deductions – Any property that passes outright to the surviving spouse is eligible for this substantial deduction.

2. Mortgages and Other Debts

3. Charitable Deductions

Any asset that is given to a qualified and registered charity may have its value deducted from the gross value of the estate.

After these deductions are made, the lifetime taxable gifts, beginning with those made in 1977, are given a numerical value and this is then added to the net. Finally, a unified tax credit is applied to this sum and what is left is the taxable amount. Anything that is under 1,000,000 dollars is free from taxation.