If the estate tax exemption in 2026 is $5 million, here’s how the tax situation would change:
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Estate Tax Calculation:
- Your estate is valued at $20 million.
- The exemption limit is $5 million.
- The taxable amount for estate tax is $20 million - $5 million = $15 million.
The estate tax rate is progressive, with the maximum rate at 40%. For simplicity, let’s assume the rate is at the maximum:
- Estate Tax Liability = $15 million × 40% = $6 million.
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Capital Gains Tax:
- The stepped-up basis would be $20 million, so if your heirs sell the house for its current value of $20 million, there would be no capital gains tax owed, since the basis is adjusted to the market value at the time of death.
So, in 2026, with a $5 million exemption limit, your heirs would face an estate tax liability of approximately $6 million, assuming the estate tax rate is 40% and the full amount above the exemption is taxable. There would be no capital gains tax due on the house if sold for its stepped-up basis value.
