Texas Estate Tax Rate: Federal Schedule and $15M Exemption

Texas has no state estate tax and no state inheritance tax, so the only estate tax rate that applies to a Texas resident’s estate is the federal one: a graduated schedule that reaches 40% on the portion of an estate above the $15 million per-person exemption in 2026. Estates worth $15 million or less owe nothing in federal estate tax, and every Texas estate, regardless of size, owes zero at the state level.

No State Estate Tax in Texas

Texas once collected a “pick-up” tax, which was not an independent state tax but a share of the federal estate tax calculated from a credit the IRS allowed for state death taxes under Internal Revenue Code Section 2011. The federal Economic Growth and Tax Relief Reconciliation Act of 2001 phased that credit out entirely, and the Texas tax dropped to zero because it had nothing left to piggyback on.

Chapter 211 of the Texas Tax Code still defines an inheritance tax framework on paper, but its operative provisions hinge entirely on the federal credit that no longer exists.1Justia Law. Texas Tax Code Title 2 Subtitle J Chapter 211 – Inheritance Taxes Practically, that means no state estate tax return to file, no state inheritance tax to pay, and no state threshold to worry about.

The Federal Rate Schedule and the $15 Million Exemption

The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, set the federal basic exclusion amount at $15 million per individual for 2026.2Internal Revenue Service. What’s New – Estate and Gift Tax That figure will adjust upward for inflation in later years.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax The increase is permanent, replacing the temporary doubling under the Tax Cuts and Jobs Act that had been scheduled to sunset at the end of 2025.

Any estate valued at or below $15 million owes no federal estate tax. Above that line, the tax applies only to the excess. The rate schedule is progressive, starting at 18% on the first $10,000 above the exemption and climbing through several brackets to a top rate of 40% on amounts more than roughly $1 million above the exemption.4Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax In any sizable taxable estate, the vast majority of dollars land in the 40% bracket because the lower brackets cover such small increments.

How Married Couples Double the Shield

Two federal provisions work together for spouses. The unlimited marital deduction lets any amount of property pass to a surviving spouse free of federal estate tax, as long as the surviving spouse is a U.S. citizen.5Office of the Law Revision Counsel. 26 USC 2056 – Bequests to Surviving Spouse That defers the tax question until the second death rather than eliminating it.

Portability closes the loop. When the first spouse dies, the executor can elect to transfer the deceased spouse’s unused exclusion amount to the survivor. If the first spouse used none of the $15 million exemption, the surviving spouse effectively holds a $30 million shield.6Internal Revenue Service. Frequently Asked Questions on Estate Taxes The catch: portability requires the executor to file Form 706 after the first death, even when the estate owes no tax. Skip that filing and the unused exemption disappears. Plenty of families lose millions in tax protection because no one told them a return was necessary when there was nothing due.

The Community Property Step-Up

Texas is one of nine community property states, and that classification creates a separate advantage on the income tax side. Under federal law, the cost basis of inherited property resets to fair market value on the date of death. In common-law states, only the deceased person’s half of jointly owned property gets that reset. In Texas, both halves of community property receive a stepped-up basis when one spouse dies, as long as at least half was included in the decedent’s gross estate.7Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent

Say a couple bought a home decades ago for $200,000 and it’s worth $800,000 when one spouse dies. In a common-law state, the surviving spouse’s basis in the whole property would be roughly $500,000. In Texas, the survivor’s basis resets to the full $800,000. Sell the next day and the capital gains tax owed is zero. On appreciated real estate, stock, and business interests, that difference can save tens or hundreds of thousands.

Lifetime Gifts Come Out of the Same $15 Million

The federal estate and gift taxes share a single unified exemption of $15 million.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Every dollar spent on taxable lifetime gifts reduces what’s available to shelter the estate at death. Give away $3 million in taxable gifts during life and only $12 million of exemption remains for the estate.

The annual gift tax exclusion lets you give up to $19,000 per recipient per year without triggering gift tax or eating into the lifetime exemption.8Office of the Law Revision Counsel. 26 USC 2503 – Taxable Gifts Married couples who split gifts can give up to $38,000 per recipient. Gifts above the annual exclusion must be reported on Form 709, and the excess counts against the unified exemption. Direct payments for someone’s tuition or medical expenses don’t count as taxable gifts at all, provided you pay the institution directly.

Generation-Skipping Transfers

Leaving assets to grandchildren or more remote descendants triggers a separate tax designed to prevent families from skipping estate tax at each generation. The generation-skipping transfer tax applies at a flat 40% rate on transfers that bypass a generation, and it also applies to gifts made to unrelated individuals more than 37.5 years younger than the donor.

Each person gets a GST exemption equal to the basic exclusion amount, $15 million in 2026.9Office of the Law Revision Counsel. 26 USC 2631 – GST Exemption The GST tax sits on top of any regular estate or gift tax, so a transfer that exceeds both exemptions can face a combined effective rate well above 40%. Allocation of the GST exemption is a central concern for families with multi-generational wealth.

What the Taxable Estate Includes

The gross estate covers the fair market value of everything the decedent owned or had an interest in at death, including some assets people don’t expect: life insurance proceeds (even when paid to a named beneficiary), retirement accounts, the decedent’s share of community property, and property over which the decedent held a general power of appointment.10Internal Revenue Service. Instructions for Form 706 – United States Estate (and Generation-Skipping Transfer) Tax Return

From that gross figure, executors subtract the deductions that bring the estate down to its taxable value:

Filing Form 706 and Meeting the Deadline

When an estate exceeds $15 million or the executor elects portability, Form 706 must be filed with the IRS. The deadline is nine months after the date of death. An automatic six-month extension is available by filing Form 4768 before the original deadline.6Internal Revenue Service. Frequently Asked Questions on Estate Taxes The extension buys time to file the return but does not extend the deadline for paying tax. Interest accrues on unpaid balances from the original nine-month due date.

Missing the filing deadline triggers a failure-to-file penalty of 5% of the unpaid tax per month, capped at 25%. If the return is more than 60 days late, the minimum penalty is $525 or the full unpaid tax, whichever is less.13Internal Revenue Service. Failure to File Penalty A separate failure-to-pay penalty runs at 0.5% of unpaid tax per month, also capping at 25%.14Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges When both apply, the failure-to-file penalty is reduced by the failure-to-pay amount so they don’t fully stack, but the combined cost still escalates quickly on a large tax bill.

Once the IRS processes the return, the executor can request an estate tax closing letter confirming acceptance. The current fee is $56, payable through Pay.gov.15Internal Revenue Service. Frequently Asked Questions on the Estate Tax Closing Letter Executors should wait at least nine months after filing Form 706 before submitting the request, unless the account transcript already shows the return has been processed. That letter lets the executor distribute remaining assets without personal exposure to future tax assessments.

Other Tax Bills the Estate Still Owes

Estate tax isn’t the only obligation to plan for. The decedent’s final Form 1040 covers income from January 1 through the date of death and is due on the normal April filing deadline for that tax year.16Internal Revenue Service. File the Final Income Tax Returns of a Deceased Person Texas has no state income tax, so there is no state equivalent.

If the estate itself earns more than $600 in income during administration (dividends, rent, interest), the executor files Form 1041, the income tax return for estates and trusts. That obligation applies even to estates well below the $15 million exemption. Texas property taxes on real estate owned by the estate also continue to accrue during probate, and unpaid balances can generate liens that outrank distributions to heirs, so executors should pay them from estate funds before closing out the estate.