Estate Tax Exemption 2026: What Changed, and Who Actually Needs to Plan

TL;DR — Key Takeaways

• The estate tax exemption 2026 amount is $15,000,000 per person, and it is not indexed this year. Internal Revenue Code section 2010(c)(3)(A) states flatly that “the basic exclusion amount is $15,000,000,” and subparagraph (B) applies the inflation adjustment only “[i]n the case of any decedent dying in a calendar year after 2026.” For a 2026 death the figure is exactly $15,000,000.
• The 2026 cliff did not happen, and the reason is better than “the exemption was extended.” The cliff lived in subparagraph (C), added by the 2017 tax act, which applied the doubled amount only to deaths and gifts “after December 31, 2017, and before January 1, 2026.” Public Law 119-21, section 70106(a)(3), struck subparagraph (C) out and rewrote the base figure in (A) from $5,000,000 to $15,000,000. There is nothing left to expire.
• Anything written on this subject before July 2025 is now wrong, including careful work by good firms. The cliff was the correct answer when it was written. On this one question, a confident source that predates the change is evidence against the current answer rather than for it.
• California imposes no estate or inheritance tax, and the statute goes further than that. Revenue and Taxation Code section 13301 provides that “[n]either the state nor any political subdivision of the state shall impose any gift, inheritance, succession, legacy, income, or estate tax.”
• Portability is not automatic. Under section 2010(c)(5)(A), a surviving spouse cannot use the first spouse’s unused exclusion unless the first spouse’s executor files an estate tax return and makes the election on it, and “[n]o election may be made under this subparagraph if such return is filed after the time prescribed by law (including extensions).”

The Direct Answer

For a decedent dying in 2026 the federal basic exclusion amount is $15,000,000, unindexed, under Internal Revenue Code section 2010(c)(3)(A). Indexing begins for deaths after 2026. The scheduled reduction to roughly half was not postponed; Public Law 119-21 struck the subparagraph that created it. California imposes no estate tax of its own.

Estate Tax Exemption 2026: The Number, the Indexing, and the Cliff That Was Repealed

Three separate facts, and most sources currently get at least one of them wrong.

The number. Section 2010(c)(3)(A) of the Internal Revenue Code reads, in its entirety: “For purposes of this subsection, the basic exclusion amount is $15,000,000.” Not a table, not a bracketed range of years, not a temporary substitution. One sentence.

The indexing, which is the detail almost everyone misses. Subparagraph (B) provides for an inflation adjustment, but only “[i]n the case of any decedent dying in a calendar year after 2026,” computed off the cost-of-living adjustment with “calendar year 2025” substituted as the base, and rounded to the nearest multiple of $10,000. So 2026 is the one year with no adjustment. The Internal Revenue Service says the same thing in the annual inflation revenue procedure for 2026: the basic exclusion amount “will be adjusted for inflation for calendar year 2027 and future years.” A source quoting an indexed 2026 figure is quoting a number that does not exist.

The cliff, and why it is gone rather than delayed. The 2017 tax act did not raise the base figure. It added subparagraph (C), which said that for 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’.” That built-in end date is what produced a decade of planning around a 2026 reversion.

Public Law 119-21, signed July 4, 2025, did three things to section 2010(c)(3), and the third is the one to notice:

Section 70106(b) applies all of it “to estates of decedents dying and gifts made after December 31, 2025.”

A word on permanence, stated carefully. The current text carries no termination provision, and the Office of the Law Revision Counsel records no future amendment to section 2010. Section 70106 itself has exactly two subsections and no sunset. What that supports is a statement about the law as it stands: there is no scheduled reduction. What it does not support is a promise, because Congress can legislate again, and this exemption has been rewritten by five different acts since 1997.

Who Actually Owes Federal Estate Tax in California?

Almost nobody, and the reason has two independent parts.

Part one: there is no California estate tax to add on top. Revenue and Taxation Code Part 8 is titled “Prohibition of Gift and Death Taxes,” and section 13301 is a prohibition rather than a silence: neither the state nor any subdivision “shall impose any gift, inheritance, succession, legacy, income, or estate tax” on a gift, an estate, or a transfer occurring by reason of death. California voters adopted that by initiative in 1982.

There is one carve-out, and it is worth understanding because it is why the question keeps coming up. Section 13302 says that whenever federal estate tax is payable, California imposes an estate tax “equal to the portion … of the maximum allowable amount of the Credit for State Death Taxes.” attributable to California property.

That is a measuring provision, and the thing it measures no longer exists. The federal credit for state death taxes was in Internal Revenue Code section 2011, and section 2011 was repealed by Public Law 113-295, effective December 19, 2014. A tax equal to a repealed credit is a tax of zero. So the answer to the do i have to pay estate tax california question is no, and the reason is not that the Legislature has never got around to it.

Part two: the federal threshold is a per-person amount, and a married couple has two of them. With portability, discussed below, a married couple can shelter $30,000,000 of combined value in 2026. Very few California estates reach that, even after decades of appreciation on real property.

But “almost nobody owes it” is not the same as “almost nobody has to file,” and the filing rule is where people get caught:

• A return is required when the gross estate exceeds the basic exclusion amount for the calendar year of death, under section 6018(a)(1) – and gross estate means gross, before debts and before the mortgage.
• Lifetime taxable gifts lower that threshold. Section 6018(a)(3) reduces the filing amount, but not below zero, by “the amount of the adjusted taxable gifts … made by the decedent after December 31, 1976.” An estate below $15,000,000 can still owe a return.
• For a nonresident who is not a United States citizen, the figure is $60,000 of United States-situs gross estate, under section 6018(a)(2). It is not indexed, and it has not moved. For a California firm with international clients this is the single most consequential number in the whole scheme.

And when tax is owed, the rate is not gentle: section 2001(c)’s schedule tops out at “$345,800, plus 40 percent of the excess of such amount over $1,000,000.”

How Does Portability Work Between Spouses?

By election, on a filed return, and once made it cannot be undone.

The mechanics are in section 2010(c). 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.” That unused amount – the DSUE – is defined in (c)(4) as the lesser of the basic exclusion amount, or the excess of the last deceased spouse’s applicable exclusion amount over the amount on which the tentative tax was computed for that spouse’s estate.

Then subdivision (c)(5)(A) supplies the gate, and it is unforgiving: a DSUE may not be used by a surviving spouse unless the first spouse’s executor files an estate tax return computing it and elects on that return; the election “once made, shall be irrevocable,” and none is available on a late-filed return.

Read that against the ordinary case. To illustrate, the first spouse dies with $4,000,000 in assets, well under the threshold, so there is no filing obligation and no tax. Nobody files. Fifteen years later the survivor dies with $19,000,000, and the portability estate tax spouse election that would have covered it was never made. The exclusion was not lost to a change in the law. It was lost to a return nobody filed.

Two further points from the text. Section 2010(c)(4) refers to “the last such deceased spouse,” so a survivor who remarries and is widowed again does not stack two DSUE amounts. And section 2010(c)(5)(B) provides that after the ordinary assessment period has expired, the Service “may examine a return of the deceased spouse to make determinations with respect to such amount” – the first spouse’s return stays open for this purpose indefinitely.

There is a second chance, and it is a published procedure rather than a judgment call – but it is not open to every estate. Revenue Procedure 2022-32 supplies a simplified method for obtaining an extension of time to make the election, “in lieu of the letter ruling process,” with no user fee. Its conditions, as the procedure states them: the decedent was survived by a spouse, died after December 31, 2010, and “was a citizen or resident of the United States on the date of death”; the executor “is not required to file an estate tax return under [section] 6018(a)” based on the gross estate and adjusted taxable gifts, setting portability aside; and no return was filed within the ordinary time. The executor must then file “a complete and properly prepared Form 706 … on or before the fifth annual anniversary of the decedent’s date of death,” stating at the top that it is filed pursuant to Revenue Procedure 2022-32 to elect portability under section 2010(c)(5)(A).

Two limits do more work than the deadline. If the estate was required to file under section 6018(a), the relief is unavailable, “because, in that case, the due date of the election is prescribed by statute and not by regulation.” And if it later turns out a return was required, a grant of relief is “deemed null and void ab initio.”

And the relief does not bring a refund with it. Section 5.01 of the procedure is explicit: an extension granted under it “does not extend the period during which the surviving spouse or the surviving spouse’s estate may make a claim for credit or refund.” So a survivor who has already paid tax the added exclusion would have covered can receive the exclusion and still be too late for the money. The procedure’s own answer is a protective claim, filed inside the refund period “in anticipation of a Form 706 being filed to elect portability.”

Which Lifetime Gifts Count Against the Exemption?

Taxable gifts do. A large category of transfers most people call gifts are not taxable gifts at all.

Start with why lifetime gifts matter at death. Section 2001(b) computes the estate tax on a tentative tax applied to the sum of the taxable estate and “the amount of the adjusted taxable gifts,” defined as post-1976 taxable gifts other than those already includible in the gross estate. And section 2505(a)(1) measures the gift tax credit by “the applicable credit amount in effect under section 2010(c) which would apply if the donor died as of the end of the calendar year.” One exemption, used either way.

What does not consume it:

• Annual exclusion gifts. Section 2503(b) excludes the first tranche of present-interest gifts to each person each year. The Code figure is $10,000, indexed since 1998 and rounded down to the next lowest multiple of $1,000. For calendar year 2026 the revenue procedure sets it at $19,000 per recipient, and at $194,000 for gifts to a spouse who is not a United States citizen.
• Direct tuition and medical payments. Section 2503(e) is emphatic: “Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter.” A qualified transfer includes an amount paid on someone’s behalf as tuition to an educational organization, and amounts paid for medical care. These are not gifts at all – they consume neither the annual exclusion nor the exemption. The payment must go to the school or the provider, not to the person.
• Transfers to a spouse who is a United States citizen, through the marital deduction. That deduction is not in the sections read for this article and is not described here beyond its existence.

What does consume it: everything else, including a gift of a future interest, which section 2503(b) excludes from the annual exclusion by its own terms.

And remember section 6018(a)(3): taxable gifts do not merely draw down the exemption, they lower the filing threshold at death by the same amount.

What Planning Steps Make Sense for Estates Near the Threshold?

Different steps depending on which side of the line the estate is on, and for most California families the honest answer is that the estate tax is no longer the problem worth solving.

If the estate is comfortably below $15,000,000 per person, the estate tax is not your planning driver, and treating it as one produces expensive structures that solve nothing. What is worth attention instead is what actually causes loss in California estates: probate avoidance and trust funding, the basis step-up on appreciated property, Proposition 19 reassessment on transfers of real property, incapacity documents, and beneficiary designations that override the will. Several of those can cost a family far more than a tax the estate was never going to owe.

If the estate is near or above the threshold, or if there is a business, concentrated real property, or a plausible path to that level, then estate tax planning high net worth california families need is a live subject. The steps that follow from the statutes read here:

1. Make the portability election when the first spouse dies, even where nothing is owed and nothing is required. It is the cheapest exclusion any family will ever buy, and section 2010(c)(5)(A) closes the door when the filing deadline passes.
2. Track adjusted taxable gifts properly. They come back into the computation under section 2001(b) and lower the filing threshold under section 6018(a)(3). Gift returns are the record of that; reconstructing it thirty years later is worse.
3. Use the annual exclusion and section 2503(e) first. They cost nothing against the exemption, and the tuition and medical route in particular has no dollar cap in the section.
4. Watch the generation-skipping transfer exemption separately. It is also $15,000,000 for 2026, but it is its own allocation and a plan spanning grandchildren can waste it.
5. If either spouse is not a United States citizen, get advice specific to that. The noncitizen-spouse annual exclusion is a different figure, the marital deduction operates differently, and the nonresident filing threshold is $60,000.

When to Bring Counsel In

At the first death in a married couple, and before any large gift.

The first-death moment is the one families miss, because there is nothing obviously wrong. No tax is due, no return is required, and the survivor has other things to attend to. But that is exactly when the portability election is available and only then. A conversation that costs a few hours protects an exclusion worth millions. Revenue Procedure 2022-32 is a genuine second chance where the estate qualifies, but it runs to the fifth anniversary of the death and it does not reopen a closed refund window.

The before-a-gift moment matters because gifts are irreversible and the accounting follows the family for decades. A transfer that would have been a qualified transfer under section 2503(e) if paid to the school becomes a taxable gift when paid to the parent. The same money, a different payee, a different result.

Related reading includes whether California has an estate tax or inheritance tax, how to use the annual gift tax exclusion, advanced strategies for high net worth families, why a will alone is not enough, and how Proposition 19 affects inherited California property.

Work with Bay Legal

Bay Legal, PC advises California families on estate tax exposure and reporting, portability elections at a first death, lifetime gifting and gift tax returns, generation-skipping allocations, and planning for noncitizen spouses and nonresident owners of California property. Call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or schedule a consultation at https://baylegal.com/contact-us/.

Frequently Asked Questions

What is the current federal estate tax exemption and how is it indexed?

For a decedent dying in 2026 the basic exclusion amount is $15,000,000, stated flatly in Internal Revenue Code section 2010(c)(3)(A). Indexing does not apply this year: subparagraph (B) adjusts the figure only for a decedent dying in a calendar year after 2026, computed off calendar year 2025 and rounded to the nearest $10,000. The Internal Revenue Service confirms that the amount will be adjusted for calendar year 2027 and later years. The generation-skipping transfer exemption is also $15,000,000 for 2026.

Who actually owes federal estate tax in California?

Very few estates. California imposes no estate or inheritance tax – Revenue and Taxation Code section 13301 prohibits the state and its subdivisions from imposing one – and the section 13302 pick-up tax is measured by a federal credit that was repealed in 2014, so it computes to zero. Federally, a married couple can shelter $30,000,000 with portability. Filing is a separate question: section 6018(a)(1) requires a return when the gross estate exceeds the exclusion amount, reduced by post-1976 taxable gifts.

How does portability work between spouses?

The surviving spouse adds the deceased spousal unused exclusion to their own basic exclusion amount under section 2010(c)(2). But section 2010(c)(5)(A) requires the first spouse’s executor to file an estate tax return computing that amount and to make the election on that return, the election is irrevocable, and no election may be made if the return is filed after the deadline including extensions. Where an estate had no independent filing obligation, Revenue Procedure 2022-32 allows a late election on a Form 706 filed by the fifth anniversary of the death, with a required notation and no user fee. Only the last deceased spouse’s unused amount counts.

Which lifetime gifts count against the exemption?

Taxable gifts do, and they come back into the death computation as adjusted taxable gifts under section 2001(b). What does not count: annual exclusion gifts, which for 2026 are the first $19,000 per recipient under section 2503(b), and $194,000 for a noncitizen spouse; and qualified transfers under section 2503(e), meaning tuition paid directly to an educational organization and amounts paid for medical care, which the statute says are not treated as gifts at all. Taxable gifts also lower the filing threshold at death.

What planning steps make sense for estates near the threshold?

Below the threshold, the estate tax is not the planning driver – probate avoidance, trust funding, basis step-up, Proposition 19 and incapacity documents matter more. Near or above it: make the portability election at the first death even when nothing is owed, keep an accurate record of adjusted taxable gifts, use the annual exclusion and section 2503(e) transfers before touching the exemption, allocate the generation-skipping exemption deliberately, get specific advice if a spouse is not a citizen, and revisit the figures once indexing resumes after 2026.