How to Calculate Remaining Estate Tax Exemption

Your estate tax exemption goes down when you make large gifts.

Your estate tax exemption goes down when you make large gifts.

When you die, you might end up leaving a significant chunk of your wealth to your Uncle Sam even if you didn't include him in your will. The estate tax applies to your total estate, but you are permitted to exempt a specified amount of property from the tax. However, this exemption is decreased by any amount you used to avoid paying gift taxes on otherwise taxable gifts during your lifetime. The exemption amount varies from year to year. Gifts made that were not subject to the gift tax because they were under the annual exemption do not reduce the estate tax exemption.

Add any gifts you've made during your lifetime that were subject to the gift tax. For example, if you made a gift of $20,000 to your friend in a year that the gift tax exemption was $13,000, $7,000 of the gift would have been subject to the gift tax. If you made three such gifts during your lifetime, your total would be $21,000.

Look up the current exemption in IRS Publication 950. The exemption amount changes with inflation and can be altered by future tax law changes. For example, the 2012 exemption is $5,120,000.

Subtract your lifetime gifts from the estate tax exemption to figure your remaining estate tax exemption. Continuing the example, if your gift tax exemption is $5,120,000, subtract $21,000 from $5,120,000 to find your remaining exemption is $5,099,000.


  • As of 2012, the annual gift tax exemption is $13,000, which means you can give $13,000 each to as many people as you want. For example, you could give $13,000 to your son, $13,000 to your friend and $13,000 to your neighbor without incurring any gift tax.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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