One Big Beautiful Bill and Estate Tax: What Actually Changed

The One Big Beautiful Bill Act was signed into law on July 4, 2025 (Public Law 119-21). Its estate tax provisions ended a decade of uncertainty about when — and by how much — the federal estate tax exemption might fall. Here's what changed, what it replaced, and what it means if you're currently handling a 2026 estate.

What the Law Changed

Before the OBBB Act, the federal estate and gift tax exemption was set at $13.61 million per individual for 2024 under the Tax Cuts and Jobs Act (TCJA) of 2017. That figure was scheduled to sunset at the end of 2025, which would have cut the exemption roughly in half — back to approximately $7 million per individual, adjusted for inflation.

The OBBB Act permanently extended and expanded the exemption. For the 2026 calendar year, the basic exclusion amount is $15 million per individual. The Act also made the exemption permanently inflation-indexed, removing the sunset provision that had hung over estate planning since 2017.

The practical effect: a person who dies in 2026 can transfer up to $15 million to non-spouse beneficiaries without owing a dollar in federal estate tax.

Married Couples and Portability: $30 Million Combined

The OBBB Act did not change the portability rules — it kept them in place and made them more valuable by raising the exemption amount they're based on.

Portability allows a surviving spouse to inherit the deceased spouse's unused exemption, known as the Deceased Spousal Unused Exclusion (DSUE). If a spouse dies in 2026 having used none of their exemption, the surviving spouse can claim the full $15 million DSUE on top of their own $15 million exemption — for a combined $30 million.

The catch: portability is not automatic. The executor of the deceased spouse's estate must file Form 706 within nine months of the date of death (or 15 months with an extension) to make the election. An estate that owes zero estate tax still needs to file Form 706 if the surviving spouse wants to preserve the DSUE for future use.

For more on the mechanics of the portability election and when it makes financial sense, see Federal Estate Tax Exemption 2026.

Annual Gift Exclusion in 2026

The OBBB Act also kept the annual gift exclusion intact. For 2026, you can give up to $19,000 per recipient per year without triggering a gift tax return or reducing the lifetime exemption.

The annual exclusion and the lifetime exemption work together. Any gifts made above the $19,000 per-year threshold in prior years reduce the $15 million lifetime exemption dollar for dollar. If a decedent gave $500,000 in taxable gifts over their lifetime, only $14.5 million of the estate tax exemption remains at death.

Executors handling 2026 estates should locate any prior Form 709 (gift tax return) filings to account for past taxable gifts before concluding that no Form 706 is required.

What Changed From Prior Law

What It Means for Alabama Executors Specifically

Alabama has no state estate tax, so the federal exemption is the only estate tax threshold that matters for Alabama decedents. As covered in Does Alabama Have an Estate Tax?, Alabama eliminated its pickup tax in 2004.

For an Alabama estate in 2026, the practical takeaway is straightforward:

If the gross estate is under $15 million: No federal estate tax is owed and Form 706 is generally not required — unless the executor is making a portability election for the surviving spouse.

If the gross estate is between $15 million and $30 million: The amount over $15 million is potentially taxable at the federal level (top rate: 40%). Sophisticated estate planning strategies — such as irrevocable trusts, qualified personal residence trusts, or charitable structures — may reduce taxable exposure, and the executor will need specialized counsel.

For surviving spouses in any estate: The portability election, requiring a timely-filed Form 706, is the most important estate tax decision the executor will make. The deadline is 15 months from the date of death at the outside. Missing it permanently forfeits the DSUE.

The Step-Up in Basis: Still in Effect

The OBBB Act did not change IRC Section 1014, which provides for the step-up in basis at death. Inherited assets still receive a new cost basis equal to fair market value on the date of death, wiping out unrealized capital gains accumulated during the decedent's lifetime.

This is often more valuable to average families than the estate tax exemption increase. A family inheriting a home that has appreciated by $400,000 benefits from a $400,000 step-up in basis regardless of whether the estate is anywhere near the $15 million threshold.

Executors should secure formal date-of-death appraisals for real estate and other hard-to-value assets early in the estate administration process. These appraisals establish the new basis for the heirs and are essential documentation if the property is eventually sold.

What This Means for Estate Planning Going Forward

The OBBB Act's elimination of the sunset provision removes the most urgent pressure that had driven large-scale gifting strategies over the past several years. Estates that had rushed to gift assets before the projected 2026 drop in the exemption no longer face that cliff.

For living individuals doing estate planning now, the $15 million permanent exemption changes the calculus around:

• Irrevocable life insurance trusts (ILITs): Less urgency for high-net-worth families under $15 million
• Lifetime gifting programs: Still beneficial for very large estates or appreciating assets, but less critical under the new permanent exemption
• Portability vs. bypass trust planning: With $30 million available for married couples through portability, the traditional bypass trust (credit shelter trust) approach is less commonly needed for tax purposes, though it may still serve other planning goals

If You're Handling a 2026 Alabama Estate Right Now

The most time-sensitive items for an Alabama executor in 2026 are not estate tax related. The estate tax analysis resolves quickly for most families. The real calendar pressure is on income tax deadlines: the decedent's final Alabama Form 40 is due April 15, the estate's Form 41 is due April 15, and the portability election window runs nine to fifteen months from the date of death.

Getting organized — separating pre-death income documents from post-death estate income, gathering date-of-death asset valuations, and locating prior tax returns — is what determines how much the CPA will cost and how cleanly the estate closes.

The Alabama Final Tax & Estate Tax Guide covers all of this in a single structured reference, from the Form 706 analysis through the estate's income tax filings and property tax obligations.

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