Estate Taxes: Federal and Washington DC Overview

Two separate estate taxes can apply to a District resident, and they operate on very different scales. Most families will never owe the federal tax. A meaningful number of District households will owe the local one, often without realizing they were anywhere near the threshold. Understanding the gap between the two is the starting point for any planning that involves taxes at all.

The Federal Estate Tax in 2026

The federal exemption sits at a historic high. The IRS confirms that estates of decedents dying during 2026 have a basic exclusion amount of $15,000,000, up from $13,990,000 for 2025 deaths. The One Big Beautiful Bill Act amended Internal Revenue Code § 2010(c)(3) to set that figure, replacing the reduction that had been scheduled for the start of 2026.

Amounts above the exemption are taxed at 40 percent. Married couples can effectively double the exemption through portability, which allows a surviving spouse to claim the deceased spouse’s unused amount, but only if a federal return is filed to elect it. That election is the single most commonly missed step in federal estate tax planning, because the return must be filed even when no tax is owed.

The District Estate Tax

The District applies its own tax at a far lower threshold. The Office of Tax and Revenue set the exclusion at $4,988,400 for decedents dying on or after January 1, 2026, up from $4,873,200 for 2025 deaths.

Only the portion above that amount is taxed, at graduated rates set out in the D-76 computation tables, which run from 11.2 percent to 16 percent. The District imposes no separate inheritance tax, so beneficiaries are not taxed individually on what they receive.

The District exclusion is not portable. A married couple cannot preserve the first spouse’s exclusion simply by leaving everything to the survivor, which is precisely what most simple wills do.

Why the District Tax Catches People Off Guard

Roughly five million dollars sounds remote until you count what is actually included. The taxable estate captures the full value of a home, retirement accounts, investment accounts, business interests, and life insurance you own at death.

A District row house that appreciated over thirty years, a federal or professional retirement balance, and a term policy purchased when the children were small can reach the threshold together without any single asset looking large. Life insurance is the most frequently overlooked piece, since the death benefit counts even though the family never treated the policy as an asset. Removing it from the estate is one reason irrevocable trusts appear in plans that otherwise look modest.

Neighboring jurisdictions differ. Maryland imposes both an estate tax and an inheritance tax, while Virginia imposes neither, which makes domicile a live planning question for people who move within the region.

Filing the D-76

The Office of Tax and Revenue requires the personal representative to file the District return and pay any tax due within ten months of the date of death. Returns for deaths in 2017 and later must be filed and paid electronically through MyTax.DC.gov.

A six-month extension of time to file may be requested on Form FR-77, and the agency does not accept the federal Form 4768 in its place. The extension covers filing, not payment, so interest runs on unpaid tax from the original due date. Certain federal Form 706 schedules must be prepared even when no federal return is required, which regularly surprises representatives who assumed the federal exemption ended the analysis. This filing sits alongside the other obligations covered under estate administration.

Planning Strategies That Work

Because the District exclusion cannot be transferred to a surviving spouse, married couples with combined assets in this range typically use a credit shelter or bypass trust. The first spouse’s exclusion funds a trust that supports the survivor during life without being taxed again at the second death, preserving an exclusion that would otherwise disappear.

Other approaches include removing life insurance from the estate through an insurance trust, making lifetime gifts that shrink the taxable estate, using charitable trusts and donor advised funds to reduce it while supporting causes you care about, and discounting closely held business interests through structures reviewed with a DC international tax planning lawyer when foreign holdings are involved.

Gifts During Life

Lifetime giving reduces the taxable estate directly. The federal annual exclusion permits gifts of $19,000 per recipient in 2026 without using any lifetime exemption or requiring a gift tax return, and a married couple electing to split gifts can double that per recipient. Payments made directly to a school or medical provider for someone else are excluded entirely, without limit.

The District imposes no gift tax, so gifts that reduce the taxable estate reduce District exposure as well. Coordinating gifts with beneficiary designations keeps the two from working against each other.

Cross-Border and Non-Citizen Considerations

Transfers to a spouse who is not a United States citizen do not qualify for the unlimited marital deduction. Preserving deferral generally requires a qualified domestic trust, and a larger annual exclusion applies to lifetime gifts to a non-citizen spouse. Non-resident decedents face a far smaller federal exemption on United States situs property, and the District taxes real and tangible property located here regardless of where the owner lived.

Treaty positions, foreign situs rules, and expatriation consequences all shift the analysis. International estate planning and exit tax planning address how these rules interact.

A Washington DC estate planning attorney can model your exposure against both thresholds. Contact our office to schedule a consultation.

Back to Estate Planning Resources →