Specialized Returns for Individuals · Estate tax

Gross estate, taxable estate (calculations and payments), unified credit, life insurance, and filing requirements

Verification 2026 Verified
tax year · reviewed 2026-08-20 · Draft for I. Ohu review

The estate tax computation is misunderstood in a specific and consequential way. People describe the exclusion as an amount subtracted from the estate, and lifetime gifts as something that eats into it. Neither is how the statute works. Lifetime gifts are added to the taxable estate to build the base; the tax is computed on that whole base at the unified rates; and the exclusion arrives at the end as a credit, worth the tax on the exclusion amount and nothing more. Getting this order wrong produces answers that are close enough to look right and are not.

The rule

The gross estate is everything. the value at the time of death of all property, real or personal, tangible or intangible, wherever situated, to the extent of the decedent's interest in it (IRC §§ 2031(a), 2033)^TY2026 The inclusion sections that follow — retained interests, powers, jointly held property, annuities, insurance — add things that are not obviously the decedent’s at death; § 2033 covers everything that plainly is.

The taxable estate is what is left after deductions. the gross estate less the deductions allowed by part IV — funeral and administration expenses, claims against the estate and unpaid mortgages under IRC § 2053, losses under § 2054, charitable transfers under § 2055 and the marital deduction under § 2056 (IRC §§ 2051, 2053(a))^TY2026

Then the computation. a tentative tax on the sum of the taxable estate and adjusted taxable gifts, reduced by the gift tax that would have been payable on post-1976 gifts under current rates — so lifetime gifts enlarge the base rather than reducing the exclusion arithmetic (IRC § 2001(b))^TY2026 The rate schedule is nominally graduated but functionally flat at the top: 40 percent of the excess over $1,000,000, on top of $345,800 — the top bracket of the IRC § 2001(c) unified rate schedule, which every estate large enough to owe tax is entirely inside^TY2026

The credit, not an exclusion. the tentative tax that IRC § 2001(c) would produce on the applicable exclusion amount — a credit against tax, not a deduction from the estate, and the reason the exclusion is worth exactly the tax on it and no more (IRC § 2010(c)(1))^TY2026 And the basic exclusion amount plus, for a surviving spouse, the deceased spousal unused exclusion amount (IRC § 2010(c)(2))^TY2026 For 2026 the basic exclusion amount is $15,000,000 for a decedent dying in calendar year 2026 — the IRC § 2010(c)(3)(A) basic exclusion amount as raised by Pub. L. 119-21 § 70106, indexed from calendar year 2026 and rounded to the nearest $10,000 under § 2010(c)(3)(B)^TY2026

Valuation may be moved once. an irrevocable election to value everything six months after death, or at the date of disposition for property disposed of within those six months — available only if it decreases both the gross estate and the sum of the estate and generation-skipping taxes after credits (IRC § 2032(a), (c), (d))^TY2026 Both conditions must hold, which is why the election is unavailable to an estate that owes no tax — there is nothing for it to decrease.

Two things reach back. property transferred, or a power relinquished, within the 3-year period ending at death is pulled back into the gross estate where it would have been included under IRC § 2036, 2037, 2038 or 2042 had the interest or power been retained (IRC § 2035(a))^TY2026 And insurance on the decedent's life is in the gross estate to the extent receivable by the executor, and to the extent receivable by anyone else where the decedent possessed any incident of ownership at death, exercisable alone or with another (IRC § 2042)^TY2026

Filing and payment. a return is required where the gross estate of a citizen or resident exceeds the basic exclusion amount in effect for the calendar year of death — $60,000 of United States situs property for a nonresident who is not a citizen (IRC § 6018(a))^TY2026 9 months after the date of death (IRC § 6075(a))^TY2026 where an interest in a closely held business exceeds 35 percent of the adjusted gross estate, the executor may elect to pay the attributable share of the tax in up to 10 equal installments (IRC § 6166(a))^TY2026

Current figures

Item	Rule
Basic exclusion amount	$15,000,000 for a decedent dying in calendar year 2026 — the IRC § 2010(c)(3)(A) basic exclusion amount as raised by Pub. L. 119-21 § 70106, indexed from calendar year 2026 and rounded to the nearest $10,000 under § 2010(c)(3)(B)^TY2026
Gross estate	the value at the time of death of all property, real or personal, tangible or intangible, wherever situated, to the extent of the decedent's interest in it (IRC §§ 2031(a), 2033)^TY2026
Taxable estate	the gross estate less the deductions allowed by part IV — funeral and administration expenses, claims against the estate and unpaid mortgages under IRC § 2053, losses under § 2054, charitable transfers under § 2055 and the marital deduction under § 2056 (IRC §§ 2051, 2053(a))^TY2026
Tax computation	a tentative tax on the sum of the taxable estate and adjusted taxable gifts, reduced by the gift tax that would have been payable on post-1976 gifts under current rates — so lifetime gifts enlarge the base rather than reducing the exclusion arithmetic (IRC § 2001(b))^TY2026
Top rate	40 percent of the excess over $1,000,000, on top of $345,800 — the top bracket of the IRC § 2001(c) unified rate schedule, which every estate large enough to owe tax is entirely inside^TY2026
Applicable credit amount	the tentative tax that IRC § 2001(c) would produce on the applicable exclusion amount — a credit against tax, not a deduction from the estate, and the reason the exclusion is worth exactly the tax on it and no more (IRC § 2010(c)(1))^TY2026
Applicable exclusion amount	the basic exclusion amount plus, for a surviving spouse, the deceased spousal unused exclusion amount (IRC § 2010(c)(2))^TY2026
Portability	a surviving spouse may add the deceased spousal unused exclusion amount to their own, but only if the first estate filed a timely and complete estate tax return making the election (IRC § 2010(c)(2)(B), (c)(4), (c)(5)(A))^TY2026
Alternate valuation	an irrevocable election to value everything six months after death, or at the date of disposition for property disposed of within those six months — available only if it decreases both the gross estate and the sum of the estate and generation-skipping taxes after credits (IRC § 2032(a), (c), (d))^TY2026
Three-year rule	property transferred, or a power relinquished, within the 3-year period ending at death is pulled back into the gross estate where it would have been included under IRC § 2036, 2037, 2038 or 2042 had the interest or power been retained (IRC § 2035(a))^TY2026
Life insurance	insurance on the decedent's life is in the gross estate to the extent receivable by the executor, and to the extent receivable by anyone else where the decedent possessed any incident of ownership at death, exercisable alone or with another (IRC § 2042)^TY2026
Annual gift exclusion	$19,000 per donee for calendar year 2026, for gifts other than gifts of future interests (IRC § 2503(b))^TY2026
Return threshold	a return is required where the gross estate of a citizen or resident exceeds the basic exclusion amount in effect for the calendar year of death — $60,000 of United States situs property for a nonresident who is not a citizen (IRC § 6018(a))^TY2026
Return due date	9 months after the date of death (IRC § 6075(a))^TY2026
Closely held business deferral	where an interest in a closely held business exceeds 35 percent of the adjusted gross estate, the executor may elect to pay the attributable share of the tax in up to 10 equal installments (IRC § 6166(a))^TY2026
Generation-skipping exemption	$15,000,000 for calendar year 2026 — the IRC § 2631(c) generation-skipping transfer exemption tracks the basic exclusion amount^TY2026

How it works in practice

The order of operations is the whole topic, and it runs in five steps.

One: value the gross estate. Everything the decedent owned at fair market value at death, plus the statutory add-backs. Fair market value is not book value, not insured value and not what the family agrees among themselves.

Two: subtract the deductions. Funeral and administration expenses, claims, mortgages, casualty losses during administration, charitable transfers, and the marital deduction. That produces the taxable estate.

Three: add adjusted taxable gifts. Post-1976 taxable gifts — gifts after the annual exclusion, not gross gifts — that are not already in the gross estate. This is the step people replace with “reduce the exclusion,” and the substitution is what goes wrong.

Four: compute the tentative tax on the total and subtract the gift tax that would have been payable. The subtraction prevents the same gifts being taxed twice, and it is computed at current rates under § 2001(g), not at the rates in force when the gifts were made.

Five: subtract the applicable credit. The credit is the tax on the applicable exclusion amount (IRC § 2010(c)(1)). It is not a dollar-for-dollar reduction of the estate.

Steps three to five give the same answer as the shortcut “estate plus gifts less exclusion, taxed at 40 percent” only because the top bracket is flat and every taxable estate is inside it. The shortcut breaks the moment a question involves a small estate, a state-level computation, or an exclusion that has already been partly consumed.

On payment. The tax is due when the return is due — nine months (IRC § 6075(a)) — and an extension of time to file is not an extension of time to pay. The § 6166 election is the main relief where the estate is illiquid, and it is worth checking early, because the 35 percent test is measured against the adjusted gross estate and can be affected by how expenses are claimed.

On filing when no tax is due. An estate below the threshold need not file, but a surviving spouse who wants portability must have a timely return filed by the first estate — see 1.6.1.c. This is the most common expensive omission in small estates, and it is a decision made by an executor who has been correctly told no tax is owed.

The gifts that did not shrink the exclusion

An unmarried woman gives her nephew $1,000,000 a year for four years and dies with a gross estate of $8,000,000 and $300,000 of deductible expenses and claims. She made no other lifetime gifts.

Each gift is a taxable gift of $981,000 after the annual exclusion, so adjusted taxable gifts are $3,924,000. The taxable estate is $7,700,000. The base for the tentative tax is $11,624,000, not $8,000,000 and not $8,000,000 reduced by anything. The tentative tax on $11,624,000 is $345,800 plus 40 percent of $10,624,000, or $4,595,400. Against that stand the gift tax that would have been payable on the four gifts and the applicable credit — the tax on the basic exclusion amount, which is larger than the base here. No tax is due, and the reason no tax is due is that the credit exceeded the tax, not that the estate was under a threshold.

The election that was not available

An executor of an estate holding a concentrated stock position watches it fall by a third in the four months after death and wants to elect alternate valuation. The estate is below the basic exclusion amount and owes no estate tax.

The election is not available. IRC § 2032(c) permits it only where it decreases both the value of the gross estate and the sum of the estate and generation-skipping taxes after credits. With no tax either way, the second condition cannot be met. The consequence is a real one: the beneficiaries take a basis under IRC § 1014 fixed by the date-of-death value, which is now above market. The election exists to reduce tax, not to reset basis.

The policy transferred too late

A man assigns a $2,000,000 policy on his own life to an irrevocable trust, giving up every incident of ownership. He dies twenty-six months later.

The proceeds are in his gross estate. Section 2042 would not have reached them, because he held no incident of ownership at death — but § 2035(a) pulls back a transfer made within the three-year period ending at death where the property would have been included under § 2042 had the relinquished power been retained. Had he lived another eleven months, the same transfer would have been outside the estate entirely. Note that the three-year rule is narrow: it reaches transfers implicating §§ 2036, 2037, 2038 and 2042, not outright gifts of other property.

The estate that had to file anyway

A widower dies with a gross estate of $2,400,000. His executor is told, correctly, that no estate tax is due and no return is required under IRC § 6018(a).

The advice is right on its own terms and wrong overall. His late wife’s estate had filed no return either, so no deceased spousal unused exclusion amount was ever elected for her — and now his own estate will not file, so nothing is preserved for anyone. Where the family expects the survivor’s own estate to grow, or where a second marriage is in prospect, the timely return that nobody was required to file is the one that matters.

Treating the exclusion as a deduction from the estate. It is a credit under IRC § 2010(c) equal to the tentative tax on the exclusion amount. Describing it as an amount “subtracted from the estate” gives the right answer only because the top bracket is flat.

Reducing the exclusion by lifetime gifts. Adjusted taxable gifts are added to the base under § 2001(b)(1)(B). The double-counting is prevented by the subtraction in § 2001(b)(2), not by shrinking the credit.

Using gross gifts as adjusted taxable gifts. The annual exclusion comes off first — adjusted taxable gifts are taxable gifts within the meaning of § 2503.

Assuming alternate valuation is available whenever values fall. IRC § 2032(c) requires it to decrease both the gross estate and the tax. An estate with no tax cannot elect it.

Thinking a life insurance policy is outside the estate because someone else is the beneficiary. Section 2042(2) reaches proceeds receivable by anyone where the decedent held any incident of ownership at death.

Forgetting that an extension to file is not an extension to pay. The tax is due nine months after death under § 6075(a) whether or not the return is extended.

Advising a small estate not to file without discussing portability. The election is made on a timely return, and the return is the only way to make it.

How this has changed

The number that governs this topic has moved more than any other figure on the site. The regime it replaced was $5,000,000 indexed, doubled to $10,000,000 indexed for decedents dying after 2017 and before 2026 by a temporary subparagraph that was to lapse — Pub. L. 119-21 § 70106(a) substituted $15,000,000 for $5,000,000, struck the temporary subparagraph and re-based the indexing on calendar year 2025^TY2026 So the exclusion is now $15,000,000 for a decedent dying in calendar year 2026 — the IRC § 2010(c)(3)(A) basic exclusion amount as raised by Pub. L. 119-21 § 70106, indexed from calendar year 2026 and rounded to the nearest $10,000 under § 2010(c)(3)(B)^TY2026, and it is a permanent figure indexed for decedents dying after 2026 rather than a temporary one with a cliff at the end (IRC § 2010(c)(3)).

That has changed the shape of the advice more than the arithmetic. Under the scheduled reversion, a great deal of planning was aimed at using exclusion before it disappeared. With the higher amount permanent, that urgency is gone for all but the largest estates, and the centre of gravity has moved to basis — because property in the gross estate takes a fair market value basis at death, while a lifetime gift carries the donor’s basis over. property acquired from a decedent takes a fair market value basis at death under IRC § 1014(a); property acquired by gift takes the donor's basis under § 1015(a), with a special rule using fair market value where that is lower and the sale produces a loss^TY2026 For a family well under the exclusion, holding an appreciated asset until death is now usually better than giving it away, which is the opposite of the advice that prevailed when the exclusion was small.

The structure itself is unchanged. Sections 2001, 2031, 2032, 2033, 2035, 2042, 2051 and 2053 have not been amended in substance, and the unified rate schedule in § 2001(c) has stood since 2013.

Exam focus

Expect a computation. Build it in the statutory order — gross estate, deductions, taxable estate, plus adjusted taxable gifts, tentative tax, less gift tax payable, less applicable credit — because questions are written to punish the shortcut. In particular, watch for a question where the gifts are given gross and the annual exclusion has to be removed first.

Know that the credit is the tax on the exclusion amount and not the exclusion amount itself, know the nine-month due date, and know that the return threshold is the basic exclusion amount for the year of death, measured against the gross estate, before deductions.

The alternate valuation election is tested on its two conditions, and the § 2035 three-year rule is tested on its narrowness — it reaches §§ 2036, 2037, 2038 and 2042 property, not gifts generally.

Check yourself

1. An estate has a taxable estate of $4,000,000 and adjusted taxable gifts of $2,000,000. On what amount is the tentative tax computed?

Answer: $6,000,000. IRC § 2001(b)(1) computes the tentative tax on the sum of the taxable estate and adjusted taxable gifts. The gifts are added to the base; they do not reduce the exclusion.

2. A decedent’s gross estate is valued at more than the basic exclusion amount, but deductions bring the taxable estate below it. Is a return required?

Answer: Yes. IRC § 6018(a)(1) measures the filing requirement against the gross estate at death, not the taxable estate, so a return is required even though no tax may be due.

3. An executor wants to elect alternate valuation for an estate that will owe no tax either way. May he?

Answer: No. IRC § 2032(c) permits the election only where it decreases both the value of the gross estate and the sum of the estate and generation-skipping taxes after credits. Where no tax is payable, the second condition fails.

4. A decedent transferred a life insurance policy on her own life to her son 30 months before her death, retaining nothing. Are the proceeds in her gross estate?

Answer: Yes. IRC § 2035(a) includes property transferred within the 3-year period ending at death where it would have been included under § 2042 had the interest been retained. A transfer more than three years before death would have been outside the estate.

5. When is the estate tax return due, and when is the tax due?

Answer: Both 9 months after the date of death. IRC § 6075(a) sets the filing date, and the tax is payable on the same date; an extension of time to file does not extend the time to pay.

Change log

2026-08-20Initial draft. Sets out the estate tax computation from the gross estate under IRC §§ 2031 and 2033 through the taxable estate under §§ 2051 and 2053 to the tax under § 2001(b), with the unified credit in § 2010(c) applied as a credit rather than an exclusion from the base, the § 2032 alternate valuation election, the § 2035 three-year rule, life insurance under § 2042, and the filing threshold and dates in §§ 6018(a), 6075(a) and 6166.