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Federal Estate Tax and Iowa
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Federal Estate Tax and Iowa

Iowa has no estate tax, and the Iowa inheritance tax is repealed for deaths on or after January 1, 2025. Only the federal estate tax can reach an Iowa estate.

By Settled Editorial

Iowa collects no estate tax, and the Iowa inheritance tax is gone for anyone who dies on or after January 1, 2025. That leaves the federal estate tax as the only estate-level tax an Iowa family can face, and it reaches almost no one, because the federal exemption sits at $15 million per person for 2026.

The question of an estate tax in Iowa has a short answer for most families: none is owed. Still, two details decide the tax picture for any given estate. The date of death controls whether the old Iowa inheritance tax can still apply, and the size of the estate controls whether the federal estate tax comes into play. This guide walks through both, then separates the estate tax from the step-up in basis, which is the tax rule that actually matters for most Iowa heirs.

Iowa Takes Nothing at the Estate Level for Recent Deaths

Start with the good news. Iowa sits among the states that charge no estate tax at all.

Iowa's old estate tax was a pickup tax. It equaled a federal credit for state death taxes and collected only what the federal government already handed back, so it added nothing for families. When that federal credit ended, the Iowa estate tax stopped applying. The Iowa Department of Revenue states plainly that the Iowa estate tax does not apply to deaths on or after January 1, 2005.

Iowa did keep a second, different tax for years: an inheritance tax under Iowa Code chapter 450. An inheritance tax falls on the people who receive property, based on their relationship to the person who died, rather than on the estate as a whole. That tax is now repealed. Iowa Code section 450.98 says the chapter does not apply to property of estates of decedents dying on or after January 1, 2025, and that the inheritance tax shall not be imposed in that event. So for a recent Iowa death, the state takes nothing at the estate level, and only the federal estate tax can reach the estate.

A lot of older pages still describe the Iowa inheritance tax and its rate schedule as if it were live. For a death in 2025 or later, that information is out of date. Check the date of death against the repeal before you trust any rate table you find elsewhere.

Deaths Before 2025 Follow the Phase-Out Schedule

The repeal did not happen all at once. Senate File 619, enacted in 2021, wound the inheritance tax down over four years before ending it. The date of death sets which rule applies.

The tax fell in steps. For a death in 2021 the rate dropped by 20 percent, in 2022 by 40 percent, in 2023 by 60 percent, and in 2024 by 80 percent. For a death on or after January 1, 2025, the tax is gone under section 450.98. An estate opened today for someone who died in, say, 2023 still runs under that year's reduced schedule, so verify the year of death before you rule the tax in or out.

The inheritance tax never applied to everyone who inherited. Under Iowa Code section 450.9, property passing to a surviving spouse, to the decedent's lineal descendants such as children and grandchildren, to lineal ascendants such as parents, and to stepchildren and their descendants was exempt from the tax. The tax fell mainly on more distant relatives and on people who were not related to the decedent. If you are settling an estate for a death before 2025, confirm the beneficiary classes and the reduced rate with the Iowa Department of Revenue rather than an old blog post.

The Federal Estate Tax Exemption

The federal estate tax applies only to an estate whose value passes the federal exemption, the dollar threshold set by federal law. To check a specific estate against the current thresholds, run the numbers in the Iowa estate tax calculator.

For deaths in 2026, that exemption is $15 million per person, up from $13.99 million for deaths in 2025. What that means for an Iowa family:

  • One person can pass up to $15 million free of federal estate tax.
  • A married couple can shield up to $30 million by using portability, covered below.
  • Only the amount above the exemption is taxed.
  • The top federal estate tax rate is 40 percent.

Because the tax reaches only the amount over the exemption, the rate on a whole estate always lands below 40 percent, and for almost every Iowa estate the federal tax is zero. The exemption is indexed for inflation, so it climbs in later years.

Older planning memos warned that the exemption would drop by roughly half at the start of 2026 under a sunset written into the 2017 tax law. That cut did not happen. Current federal law, updated in 2025, sets the exemption at $15 million per person for 2026 and indexes it for inflation each year after. If your documents include trusts or gifting built around a lower number, review them with your attorney, since the plan may no longer be needed.

What Counts in the Gross Estate

The gross estate for federal purposes is wider than what passes through probate or a will. It generally takes in:

  • Real estate, bank and brokerage accounts, stocks, and bonds
  • Life insurance proceeds on a policy the decedent owned or controlled, where ownership drives inclusion rather than who the beneficiary is
  • Retirement accounts such as IRAs, 401(k)s, and 403(b)s
  • Business interests and closely held company stock
  • The decedent's share of jointly owned property
  • Property held in a revocable living trust
  • Certain transfers made within three years of death, above all gifts of life insurance

Someone with a paid-off Iowa farm or home, a large IRA, and a life insurance policy can have a gross estate far bigger than the probate estate, because most of those assets pass outside probate yet still count for the federal estate tax. The gross estate then shrinks by debts, funeral and administration costs, and the deductions below to reach the taxable estate.

Deductions That Shrink the Taxable Estate

Two deductions wipe out the federal estate tax for most families, even wealthy ones.

The unlimited marital deduction lets property left outright to a surviving spouse who is a U.S. citizen pass free of federal estate tax with no dollar cap. That is why most married couples owe nothing when the first spouse dies. The tax is deferred, not erased, and can surface when the second spouse dies.

The unlimited charitable deduction lets property left to a qualified charity come out of the estate dollar for dollar. Debts, funeral bills, and estate administration expenses also reduce the taxable estate.

Portability and IRS Form 706

When the first spouse dies, their unused federal exemption does not vanish on its own. Through the portability election, the surviving spouse can add the deceased spouse's unused exemption, called the deceased spousal unused exclusion, to their own.

Picture a husband who dies in 2026 with a $4 million estate. He uses $4 million of his $15 million exemption, and the remaining $11 million can pass to his wife. She then holds her own $15 million plus his $11 million, so $26 million is shielded.

Here is the trap. Portability is not automatic. The executor has to file IRS Form 706, the United States Estate Tax Return, to make the election, and the return is due nine months after death, with a six-month extension available to file. Portability requires that filing even when the estate owes no tax and sits well under the exemption. Families often skip Form 706 because nothing is owed, and that choice can cost a surviving spouse a great deal if the couple's combined estate later grows past one exemption. Filing only to keep portability is a low-cost step an attorney can handle.

Lifetime Gifts and the Annual Exclusion

Federal gift tax and estate tax share one lifetime exemption, so gifts during life and transfers at death draw on the same amount.

For 2026, you can give up to $19,000 per recipient in a year without touching your lifetime exemption or filing a gift tax return, and a married couple can give $38,000 per recipient. Money paid straight to a medical provider or a school for someone's care or tuition, gifts to a spouse, and gifts to charity fall outside the gift tax entirely. A gift above the annual amount uses part of your lifetime exemption and calls for IRS Form 709, which records the gift rather than triggering a tax. Get advice before making large lifetime gifts, since the gift, estate, and capital gains rules interact.

The Estate Tax Is Not the Step-Up in Basis

Two very different taxes get mixed up here, so keep them apart.

The federal estate tax is a transfer tax on the value of the estate at death, and it applies only above the $15 million exemption, so it touches almost no one. The step-up in basis is an income-tax rule that reaches nearly every inherited asset regardless of estate size. Under it, an inherited asset's cost basis resets to its fair market value on the date of death, which lowers the capital gains tax the heir owes on a later sale. Our guide on the step-up in basis shows how that reset works.

For most Iowa families, the step-up is the tax rule that actually matters, not the estate tax. Holding an appreciated asset until death gives heirs a stepped-up basis, while gifting that same asset during life hands the recipient the old basis and wastes the reset.

What Iowa Families Should Do

Most Iowa estates need no estate tax planning at all. The federal exemption is high, and Iowa adds no state layer for recent deaths. The steps that carry the weight are these:

  1. Add up everything, including life insurance you own and retirement accounts, not just probate assets. If the total sits well under $15 million, no federal estate tax applies.
  2. Verify the date of death. On or after January 1, 2025, no Iowa inheritance tax applies. Before that date, check the phase-out year and confirm the reduced amount with the Iowa Department of Revenue.
  3. Keep portability alive for a married couple by filing Form 706 after the first death, even when no tax is due.
  4. Lean on the step-up in basis, and get help from an attorney and a CPA only when the estate is genuinely large or holds a farm, a business, or out-of-state property.

To see how the estate moves through court, read the Iowa probate guide and the first steps after a death in Iowa. To keep more property out of the estate in the first place, see how to avoid probate in Iowa.

Frequently Asked Questions

Does Iowa have an estate tax or an inheritance tax?

Iowa has no estate tax. Iowa did charge an inheritance tax under chapter 450, but the legislature repealed it. For anyone who dies on or after January 1, 2025, no Iowa inheritance tax applies, so the only estate-level tax an Iowa estate can face is the federal one.

When did the Iowa inheritance tax end?

Senate File 619, passed in 2021, cut the inheritance tax in steps for deaths in 2021 through 2024, then ended it. Iowa Code section 450.98 repeals the tax for property of estates of decedents dying on or after January 1, 2025.

Could an older Iowa death still owe inheritance tax?

Yes. The repeal turns on the date of death. A death before January 1, 2025 falls under the phase-out schedule, so an estate may still owe a reduced Iowa inheritance tax. Check the date of death first, then confirm the amount with the Iowa Department of Revenue.

How much can pass free of federal estate tax in 2026?

For deaths in 2026, the federal exemption is $15 million per person, and a married couple can shield up to $30 million with portability. Only the amount above the exemption is taxed, at a top rate of 40 percent.

Do I need to file a federal estate tax return for an Iowa estate?

File IRS Form 706 when the gross estate plus lifetime taxable gifts passes the exemption, or when a surviving spouse wants to keep the deceased spouse's unused exemption through portability. The return is due nine months after death, with a six-month extension to file.

Related Iowa Guides

Sources:

It is not legal advice.

Information current as of July 15, 2026

Settled Estate is not a law firm, and this content is for informational purposes only and does not constitute legal advice. Probate laws and procedures in Iowa can change. Consult with a qualified attorney for advice specific to your situation. Full disclaimer.

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