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New York and the Federal Estate Tax
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New York and the Federal Estate Tax

New York has its own estate tax with a 105% cliff on top of the federal estate tax. Learn the 2026 federal exclusion, portability, and how the two taxes work separately.

By Settled Editorial

Most New York families will never owe federal estate tax. The federal exclusion is high enough that the overwhelming majority of estates pass to heirs completely free of the federal tax. New York, though, adds a second layer that federal-only guides miss: the state runs its own estate tax with a much lower exemption and a notorious "cliff." So a New York estate can be well under the federal threshold and still owe tax to Albany.

This guide explains both taxes as they apply to New York families, and keeps them separate. It covers the federal exclusion and how portability works, the New York estate tax and its cliff, what counts in the estate, and how all of that differs from the step-up in basis, which is the income-tax rule that actually matters to most heirs.

Two Separate Taxes, Not One

New York families should think of the estate tax as two different taxes with two different thresholds:

  • Federal estate tax. Applies only above the federal basic exclusion, which is $15 million per person for deaths in 2026. Very few estates reach it.
  • New York estate tax. Applies above the state exemption, which is roughly $7.35 million for 2026. That is far lower than the federal number, so New York's tax reaches many estates the federal tax never touches.

The key insight for a New York family: an estate between about $7.35 million and $15 million usually owes no federal estate tax, because it is under the federal exclusion, but it may owe New York estate tax, because it is over the state exemption. New York also has no inheritance tax, which is a separate tax some states charge the people who receive an inheritance. New York charges only the estate, not the heirs.

The Federal Estate Tax Exclusion

The federal estate tax applies only to estates whose value exceeds the basic exclusion amount, the exemption threshold set by federal law.

For deaths in 2026, the federal basic exclusion is $15 million per person. That means:

  • One person can pass up to $15 million free of federal estate tax.
  • A married couple can shield up to $30 million using portability (covered below).
  • Only the amount above the exclusion is taxed federally.
  • The top federal estate tax rate is 40%.

The federal exclusion is indexed for inflation, so it rises in future years. Because the federal tax reaches only the amount over $15 million, the effective federal rate on an entire estate is always below 40%, and for the vast majority of New York estates it is zero.

A Note on the 2026 Law

Many older estate planning documents warned that the federal exclusion would roughly cut in half at the start of 2026 under a sunset provision in the 2017 tax law. That sunset did not take effect. Under current federal law the exclusion is $15 million per person for 2026, indexed going forward. If your plan includes trusts or gifting programs designed around a lower federal exclusion, review it with your attorney, because New York's much lower exemption and cliff may now be the more important planning target.

The New York Estate Tax and the 105% Cliff

Here is where New York differs sharply from federal-only states. New York taxes estates above a state exemption that, for deaths in 2026, is roughly $7.35 million. The exemption is indexed and adjusts annually. New York estate tax rates run from about 3% up to a top rate near 16%.

The New York exemption works differently from the federal exclusion, and the difference is expensive. The federal exclusion is a true exemption: an estate slightly over $15 million pays federal tax only on the excess. New York instead phases out its exemption between 100% and 105% of the exemption amount. Once an estate exceeds roughly 105% of the exemption, about $7,717,500 for 2026, the exemption disappears entirely and New York taxes the whole estate from the first dollar, not just the amount over the threshold.

Practitioners call this the New York estate tax "cliff." An estate right at the exemption owes nothing to New York. An estate a little above 105% of the exemption can owe well over $500,000 in New York estate tax, because the benefit of the exemption vanishes rather than tapering off. Crossing the cliff can cost more in tax than the amount by which the estate exceeded the threshold, which is why New York planning often focuses on staying under the cliff through charitable gifts or lifetime transfers.

Because of the cliff, the numbers that matter most to a large New York estate are the state exemption and 105% of that exemption, not the far higher federal exclusion. To size your estate against the New York threshold and see roughly what the state tax would be, use our New York estate tax guide and calculator.

What Counts in the Gross Estate

The "gross estate" is broader than what passes through probate or is listed in a will, and both the federal and New York calculations start from a similar broad base. Under Internal Revenue Code Sections 2031 through 2046, the gross estate generally includes:

  • Real estate, bank and brokerage accounts, stocks, and bonds
  • Life insurance proceeds on a policy the decedent owned or controlled (ownership, not who the beneficiary is, drives inclusion)
  • Retirement accounts such as IRAs, 401(k)s, and 403(b)s
  • Business interests and closely held company stock
  • The decedent's share of jointly owned property
  • Assets in a revocable living trust
  • Certain gifts made within three years of death, particularly transfers of life insurance
  • Powers of appointment the decedent held

Someone with a paid-off New York home, a large IRA, and a life insurance policy can have a gross estate far bigger than their probate estate, because most of those assets pass outside probate but still count. This matters more in New York than in most states, because the lower state exemption means a family home plus retirement savings can push an estate over the New York threshold even when it stays comfortably under the federal one.

Deductions That Shrink the Taxable Estate

Two deductions eliminate estate tax for most families, even wealthy ones, and both apply to the federal and New York calculations:

Unlimited marital deduction. Property left outright to a surviving spouse who is a U.S. citizen passes free of federal and New York estate tax with no dollar limit. This is why most married couples owe nothing when the first spouse dies. The tax is deferred, not erased, and can apply when the second spouse dies.

Unlimited charitable deduction. Property left to a qualified charity is fully deductible from the estate, dollar for dollar. In New York, a charitable gift can also do double duty by pulling a near-cliff estate back under 105% of the exemption.

Debts, funeral costs, and estate administration expenses also reduce the taxable estate.

Portability: A Federal Tool New York Does Not Match

When the first spouse in a marriage dies, their unused federal exclusion does not vanish automatically. Under the federal portability election, the surviving spouse can claim the deceased spouse's unused exclusion, called the deceased spousal unused exclusion, or DSUE, and add it to their own.

Example. A husband dies in 2026 with a $4 million estate and uses $4 million of his $15 million federal exclusion. His remaining $11 million can transfer to his wife. She then has her own $15 million exclusion plus his $11 million, a combined $26 million shielded from federal estate tax.

Here is the trap: federal portability is not automatic. The executor must file IRS Form 706, the United States Estate Tax Return, to make the election. The return is due nine months after death, with a six-month extension available. Portability requires the filing even when the estate owes no federal tax.

Two New York cautions matter here. First, New York does not offer portability. A New York couple cannot carry a deceased spouse's unused state exemption to the survivor, so married couples with estates near the New York threshold often plan with a credit shelter or bypass trust to use both exemptions. Second, a filing may satisfy the federal return but New York has its own return, Form ET-706, with its own filing rules. Ask an attorney which returns your situation requires.

When a Federal Return Must Be Filed

File federal Form 706 when any of these apply:

  • The gross estate plus adjusted taxable gifts exceeds the federal exclusion (federal tax may be owed).
  • You want to elect portability to preserve the deceased spouse's unused federal exclusion.
  • The estate has generation-skipping transfers to allocate.

The federal return is due nine months after the date of death. Form 4768 grants an automatic six-month filing extension, but any tax owed is still due at the nine-month mark, since the extension covers filing, not payment. A New York estate over the state exemption also files New York Form ET-706, generally on the same nine-month timeline. Because a New York estate can trigger the state return without triggering the federal one, confirm both deadlines. Form 706 and ET-706 are complex returns, so estates that must file them usually benefit from a CPA or estate attorney to document valuations, claim deductions, and handle the New York cliff correctly.

Gifts During Life and the Annual Exclusion

The federal gift tax and estate tax are unified: lifetime gifts and transfers at death share the same federal lifetime exclusion.

Annual gift exclusion. For 2026, you can give up to $19,000 per recipient per year without touching your lifetime exclusion or filing a gift tax return. A married couple can give $38,000 per recipient, and there is no limit on the number of recipients.

Gifts that never count. Some transfers are entirely outside the gift tax: amounts paid directly to a medical provider for someone's care, amounts paid directly to a school for someone's tuition, gifts to a spouse, and gifts to qualified charities.

A New York wrinkle. New York has no separate gift tax, so lifetime gifts are not taxed as gifts by the state. New York does, however, add certain gifts made within three years of death back into the taxable estate. That "clawback" means last-minute gifting to dodge the cliff can fail if the giver dies within three years. Plan gifts early and with advice.

Larger gifts. A gift above the annual exclusion uses part of your lifetime federal exclusion and requires IRS Form 709. Filing the return does not mean you owe tax; it simply records the gift against your lifetime amount. Because the interplay between gift tax, estate tax, the New York clawback, and capital gains can get complex, get advice before making large lifetime gifts.

Estate Tax Is Not the Step-Up in Basis

Two very different kinds of tax get confused here, so keep them separate.

The estate tax, both federal and New York, is a transfer tax on the value of the estate at death. The federal tax applies only above the $15 million exclusion, so it reaches almost no one. The New York tax applies above the roughly $7.35 million exemption, with the cliff above 105% of that amount.

The step-up in basis is an income-tax rule that applies to nearly every inherited asset regardless of estate size. Under IRC Section 1014, an inherited asset's cost basis resets to its fair market value on the date of death. That lowers the capital gains tax the heir owes when they later sell. New York is a separate-property state, so only the decedent's share of jointly owned property steps up. Even a New York estate that owes state estate tax still passes a stepped-up basis to the heirs. See the New York step-up in basis guide for how the basis reset works and how New York taxes any gain.

For the great majority of New York families, the step-up is the tax rule that actually matters, not the estate tax. If you sell an inherited home, our guide on selling inherited property in New York walks through how the stepped-up basis limits the gain.

Practical Takeaways for New York Families

Most New York estates need no estate tax planning at all. But because New York's exemption is far lower than the federal one and comes with a cliff, families with a valuable home, a business, or large retirement accounts should run the numbers. The practical moves are usually these:

  1. Add up everything against the New York number first. Include life insurance you own and retirement accounts, not just probate assets. If the total is well below the New York exemption of roughly $7.35 million, no estate tax applies at either level.
  2. Watch the cliff. If your estate is near 105% of the New York exemption, small changes matter. A charitable gift or a well-timed lifetime transfer can pull the estate back under the cliff and save far more than the gift costs.
  3. Married couples should plan for two exemptions. New York has no portability, so a credit shelter or bypass trust is often how a couple uses both New York exemptions instead of wasting the first spouse's.
  4. Lean on the step-up. Holding appreciated assets until death gives heirs a stepped-up basis. Gifting those same assets during life hands the recipient your old basis and wastes the step-up, and New York's three-year clawback can still pull the gift back into the estate.
  5. Get help if the estate is genuinely large or near the cliff. Business interests, out-of-state property, blended families, or an estate approaching the New York exemption are the cases where an attorney and CPA earn their fee.

To estimate what settling an estate costs in your county, use our New York probate fee calculator, and see the New York probate costs guide for how the pieces add up.

Frequently Asked Questions

Does New York have an estate tax or inheritance tax?

New York has a state estate tax but no inheritance tax. So a New York estate can face two separate taxes: the federal estate tax above the federal exclusion, and the New York estate tax above the state exemption, which is roughly $7.35 million for deaths in 2026.

Can a New York estate owe state estate tax but no federal estate tax?

Yes. An estate between about $7.35 million and $15 million usually owes no federal estate tax because it is under the federal exclusion, but it may owe New York estate tax because it is over the lower state exemption. The two taxes are calculated separately.

What is the New York estate tax cliff?

New York phases out its exemption as an estate rises from 100% to 105% of the exemption. An estate above roughly $7,717,500 for 2026 loses the entire exemption and is taxed on the whole estate from the first dollar. Crossing the cliff can add hundreds of thousands of dollars of tax.

How much can I leave without owing federal estate tax?

For deaths in 2026, the federal basic exclusion is $15 million per person. A married couple can shield up to $30 million using portability. Only the amount above the exclusion is taxed federally, at rates up to 40%. New York's separate exemption is much lower.

Is the step-up in basis the same as the estate tax?

No. The federal and New York estate taxes are transfer taxes on the estate at death. The step-up in basis is an income-tax rule that resets an inherited asset's cost basis to its date-of-death value, which lowers capital gains tax when the heir later sells.

Related New York Guides

Sources

Last Updated: July 2026. This guide provides general information about the federal and New York estate taxes as they apply to New York estates. Tax law is complex and changes frequently. Consult a tax professional or estate planning attorney for advice specific to your situation. It is not legal advice.