The Estate and Gift Tax Exemption Is Now $15 Million and Permanent: What It Means If You Have an IRS Debt and an Estate

A major piece of tax legislation, signed on July 4, 2025, permanently raised the federal estate and gift tax exemption to $15 million per person, starting January 1, 2026. If you owe the IRS back taxes and you also have assets you plan to leave to your family, this change affects you in ways that go beyond estate planning. Understanding what the law did and what the IRS can still do to your estate is the first step toward protecting what you have built.

What the One Big Beautiful Bill Act Actually Did

President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4, 2025, ending years of uncertainty around the fate of the increased federal gift, estate, and generation-skipping transfer tax exemptions, which were set to expire at the end of 2025.

Before the OBBBA, the clock was ticking. At the end of 2025, the historically high gift, estate, and generation-skipping exemption levels of $13.99 million per person were slated to revert to the pre-2017 Tax Cuts and Jobs Act levels of $5 million per person, plus annual inflation adjustments, due to the sunset provisions of the TCJA. That would have roughly cut the exemption in half overnight.

The OBBBA stopped that from happening and went further. The unified estate and gift tax exemption is permanently increased to $15 million per individual, or $30 million for married couples, beginning on January 1, 2026, with annual inflation adjustments thereafter. Congress made it permanent, with no more sunset clauses, and the exemption gets inflation adjustments every year starting in 2027.

This new $15 million exemption amount will be reflected as the “basic exclusion amount” in Internal Revenue Code section 2010(c)(3)(A), where it will officially replace the old $5 million exemption. In plain terms, most Americans will now never owe a single dollar in federal estate tax.

What This Means for Your Heirs, in Plain Terms

If the total value of everything you own, your home, savings, investments, retirement accounts, and business interests, falls under $15 million, your estate will not owe federal estate tax when you die. Single individuals with estates under $15 million do not need to worry about the federal estate tax. Income tax planning is now the primary focus for these individuals.

The increase means that married couples can pass $30 million tax-free beginning in 2026. The top federal estate tax rate remains at 40 percent for amounts above the exemption, so if your estate is well above these thresholds, planning still matters. But for most families, the federal estate tax bill will be zero.

There is one important note if you live in a state like New York or Massachusetts. Some states impose estate or inheritance taxes with much lower exemptions. New York State maintains its own estate tax system with a much lower exemption. As of 2025, the New York estate tax exemption is approximately $7.16 million per person, and unlike the federal system, New York does not offer portability between spouses. Check your state’s rules separately.

Here Is the Part Nobody Tells You: IRS Debt Does Not Disappear

A higher estate tax exemption is genuinely good news. But if you personally owe the IRS back taxes, a tax lien, or unpaid income taxes, the new exemption does not protect your estate from those obligations. These are two completely different things, and confusing them can cost your family dearly.

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets.

A federal tax lien is a legal claim to your property, including property that you acquire after the lien arises. The federal tax lien arises automatically when the IRS sends the first notice demanding payment of the tax debt assessed against you and you fail to pay the amount in full.

When you die with an unresolved IRS balance, the debt does not die with you. If you owed taxes, the debt is paid from the estate before heirs receive anything. Heirs do not personally inherit that debt, unless assets were distributed before the estate’s tax obligations were settled. The IRS gets paid first, before your family sees a dollar.

And if your heirs personally owe the IRS? The problem compounds. If a beneficiary owes back taxes and is about to inherit money or property, the IRS can levy that inheritance to satisfy the debt. A federal tax lien already in place extends to all future property acquired, including inheritances. The IRS can also serve a levy directly on the executor before distribution, intercepting the beneficiary’s share before it ever reaches them.

The Intersection: What Happens When You Have Both an Estate and IRS Debt

If you owe back taxes and you also have assets worth passing on, you are sitting at the crossroads of two different tax problems. The OBBBA change reduces one of them, but it does nothing for the other.

Here is a practical way to think about it. The estate tax exemption determines whether the government takes a share of your wealth simply because you died wealthy. IRS back taxes are a separate debt you personally owe. That debt follows your estate through probate. If a tax lien was already attached to your assets before you passed, the lien is still enforceable. That means an heir can inherit an asset, but if they sell it, the proceeds go to the IRS. They have to clear the debt to get a clean title.

This is not a theoretical concern. With more Americans passing on homes that carry unresolved IRS debt, beneficiaries are increasingly finding themselves entangled in complicated tax issues they did not create. Heirs who inherit property with IRS liens may be at risk of losing all or part of their inheritance unless they act quickly and know their rights.

If you also plan to make gifts during your lifetime, keep in mind that since the gift and estate tax exemptions are linked, lifetime gifts in excess of the annual gift tax exclusion will reduce the amount you may leave estate-tax-free at death. The annual gift tax exclusion, the amount you can give to any individual without using your lifetime exemption, is $19,000 per recipient in 2026. Lifetime gifts above the annual exclusion require filing IRS Form 709. An unresolved IRS debt adds friction to all of these strategies.

Why Resolving IRS Debt Now Matters More Than Ever

The new $15 million exemption gives families more runway to think clearly about wealth transfer. The biggest advantage of the One Big Beautiful Bill is how it removes the looming expiration date. Under the TCJA, individuals felt compelled to race against time and move assets out of their estates before the exemption shrank. The new law lets people take a more measured approach to gifting and estate transfers.

That measured approach only works if your IRS obligations are not quietly undermining everything you are trying to protect. The IRS generally has 10 years to collect unpaid taxes, a period commonly known as the Collection Statute Expiration Date (CSED). During that window, the IRS can file a Notice of Federal Tax Lien publicly, garnish wages, levy bank accounts, and take action against property you plan to leave to your family.

Several resolution options may be available to you, depending on your circumstances. An Offer in Compromise could allow you to settle your tax debt for less than the full amount owed if you qualify. An installment agreement lets you pay over time in manageable amounts. Currently Not Collectible status may pause collection if you are facing financial hardship. Penalty abatement may reduce what you owe. Each of these paths has specific requirements, and not every option is right for every situation. Results vary depending on your individual facts.

What to Do Next If You Have IRS Debt and an Estate

The OBBBA has handed many families a genuine opportunity. For the first time in years, you can plan a wealth transfer without a sunset deadline hanging over you. But if unresolved IRS debt is sitting inside your estate, that opportunity is at risk. A tax lien filed today becomes an heir’s problem tomorrow.

The right first step is to get a clear picture of where you stand with the IRS. How much do you owe? Are there unfiled returns making the situation worse? Has a Notice of Federal Tax Lien already been filed against your property? Once you know what you are dealing with, you can explore which resolution options you may qualify for.

At Clear Start Tax, our team works with individuals and families who owe the IRS and want to protect what they have built. We review your full situation, explain your options in plain language, and help you take the right steps to pursue resolution. Whether you are dealing with a tax lien, back taxes, unfiled returns, or IRS collection notices, we are here to help you understand where you stand and what may be possible. Reach out today for a free consultation.