Congress also established that the federal estate tax would be pegged to inflation. Thus it has steadily been increasing the past couple of years (see chart below). The IRS recently announced in October that the exclusion amount for 2015 would be $5,430,000 or $5.43M. This represents a $90,000 increase from 2014, which had an exclusion of $5,340,000.
Year Amount Excluded Maximum Tax Rate
2001 $675,000 55%
2002 $1M 50%
2003 $1M 49%
2004 $1M 48%
2005 $1M 47%
2006 $2M 46%
2007 $2M 45%
2008 $2M 45%
2009 $3.5M 45%
2010 Repealed 0%
2011 $5M 35%
2012 $5.12M 35%
2013 $5.25M 40%
2014 $5.34M 40%
2015 $5.43M 40%
In most basic terms, the federal estate tax is a tax on estates whose value exceeds the exclusion amount. So if a person passed away in 2014 and was worth $1M, no federal estate tax would be due. Conversely, if the person was worth $10M, then a federal estate tax would generally be owed.
The contents of this post only relate to the federal estate tax. Each state is free to institute or not institute an estate tax, just like income taxes. For example, New York has an estate tax whereas California does not.
