In October 2025, the IRS announced the revised federal estate tax and gift tax limits for 2026. The federal estate tax limit will increase from $13.99 million in 2025 to $15 million in 2026. The federal gift tax exclusion will remain at $19,000 per recipient. In 12 states, residents will need to consider either a state-level estate tax or an inheritance tax. For those curious, Maine, Vermont, New York, Massachusetts, Rhode Island, Connecticut, Maryland, Illinois, Minnesota, Washington, Oregon and Hawaii still have estate taxes. Maryland, New Jersey, Pennsylvania, Kentucky and Nebraska have state-level inheritance taxes.
Although these exemptions might be high for those states considering only the federal estate tax exemption, this does not mean they should not develop a succession and estate plan. These plans are essential not only to minimize potential tax liability but also to ensure that the farming operation passes to the next generation and continues to be successful. Planning early can help pass on the farming operation to the farm heirs and develop strategies to handle potential non-farm heirs.
Federal estate taxes
For 2026, the federal estate tax limit increases to $15 million for an individual and $30 million for a couple. This increase is not due to inflation but due to the passage of the One Big Beautiful Bill Act, P.L. 119-21, July 4, 2025. This made permanent the existing estate tax exemption passed initially in 2017. A deceased person owes federal estate taxes on a taxable estate. The taxable estate is the gross estate minus allowable expenses and deductions, then adding back in adjustable lifetime gifts (those that exceeded the federal gift tax exemption when given).
The final number is the taxable estate, which is compared to the federal estate tax exemption to determine if taxes are due. For example, if a person who passed away in 2026 had a taxable estate of $13 million, no estate taxes would be owed since the taxable estate is under the $15 million estate tax exemption.
One last note on federal estate taxes: A surviving spouse has an unlimited marital deduction. This means any property left to the surviving spouse from the predeceasing spouse passes estate tax-free and does not count against the federal estate tax exemption. The surviving spouse can include the predeceasing spouse’s unused federal estate tax limit in their federal estate tax limit.
This concept is known as portability and effectively allows the surviving spouse to use the predeceasing spouse’s unused portion. In our previous example, the surviving spouse would have $2 million in unused federal estate tax exemption to use upon their death, plus the federal estate tax exemption in effect at the time the surviving spouse passes away.
Federal gift tax limit
Federal tax law allows each taxpayer to gift up to $19,000 per year to one individual without incurring federal gift taxes. A couple could give up to $38,000 to an individual in 2026. The federal gift tax limit will remain at $19,000 in 2026. This exemption is tied to inflation but can only increase by $1,000.
Gifts over the federal gift tax limit do not automatically incur taxes. Taxpayers may use the amount over the gift tax exemption to reduce their federal estate tax exemption. For example, if Mary gifted a child on the farm, equipment worth $20,000, that $1,000 over the limit would not automatically incur taxes for Mary but could be deducted from her $15 million federal estate tax exemption in 2026. Any amount deducted would be recalculated into her taxable estate upon her passing.
State estate tax limits
For those who live in a state with an estate tax or an inheritance tax, it's essential to work with a tax professional to determine how best to develop an estate plan that limits state estate tax liability. For states with state estate tax exemptions, the lowest is Oregon’s at $5 million in 2025, and the highest is Connecticut at $15 million. Proper estate planning with an attorney and a tax professional can help limit the need to pay state estate taxes.
On a different level, in the states with inheritance taxes, those taxes impact heirs who would inherit property. Some states, such as Maryland, exempt direct family members from inheritance taxes, but others do not. Working early on to develop an estate plan with qualified attorneys and tax professionals can help you develop strategies to limit the inheritance tax burden on your heirs as well.
How does this impact you?
Benjamin Franklin once wrote, “In this world, nothing can be said to be certain, except death and taxes.” With that in mind, farm families concerned about an estate exceeding the federal estate tax exemption, and those in states with an estate or inheritance tax, need to begin working on farm succession and estate plans to limit potential estate taxes down the road. Working with a tax adviser early on can help limit taxes and devise a tax plan to keep the farm in operation for future generations.
Failure to properly plan can force surviving family members to sell family assets to pay taxes. Along with a tax adviser, producers should consider working with additional team members, such as an attorney and a financial planner, to begin developing a succession plan for their operation.
