Can You Avoid the Federal Estate Tax on Property? Here’s What the Law Allows

Key Takeaways:

• State-Level Estate Taxes Vary, But Not All States Impose Them: Some states tax estates or inheritances separately from federal rules, but many do not. Knowing which laws apply depends on where your property is located and how it’s titled.
• Federal Estate Tax Kicks In Above a High Threshold: As of 2024, the federal exemption is $13.61 million per individual and $27.22 million for married couples. Most estates fall below this limit, though real estate and investment growth can push totals higher over time.
• Strategic Planning Helps Reduce Taxable Estate Value: Gifting during your lifetime, donating real property to nonprofits, or placing assets in a trust are proven ways to lower the size of a taxable estate while keeping your long-term goals intact.

You’ve spent years turning your house into a home or carefully building your commercial property portfolio. Then a headline about “death taxes” pops up, and uncertainty creeps in. How much of your legacy is truly yours to give, and how much might go to Uncle Sam when property passes to your loved ones?

The federal estate tax, sometimes called the “death tax,” raises plenty of questions. For Texans, though, the rules take a different shape. As property values climb and exemption laws shift, determining how the federal tax applies to real estate means sorting through complex figures and unfamiliar legal terms. This guide will take a closer look at what federal law allows.

Federal Estate Tax: What Triggers It And Who Pays

The federal estate tax applies only when the total value of an estate exceeds a specific threshold. For 2023, that exemption sits at $12.92 million for individuals and $25.84 million for married couples. These limits apply to the combined value of your assets—homes, investments, business interests, and other property—minus qualifying debts or deductions.

However, only the portion of an estate that exceeds the exemption is subject to tax, and rates can climb to 40%. While many estates fall below that threshold, rising property values and appreciating assets can push higher-net-worth families into taxable territory. That’s why planning early can help keep the taxable portion in check.

What Are State-Level Estate And Inheritance Taxes?

Across the U.S., some states integrate their own estate or inheritance taxes. These state-level taxes kick in at much lower thresholds and can impact families with moderate to high-value properties. Estate taxes apply to the overall value of a deceased person’s assets, while inheritance taxes are based on what individual heirs receive.

Thresholds vary significantly depending on location. For example, Oregon and Massachusetts apply estate taxes to estates valued above $1 million, while Iowa plans to phase out its inheritance tax by 2025. Regardless, these taxes add another layer of planning for property owners who hold real estate or other assets in taxed states.

Why Texas Property Owners Have An Advantage

Some states levy their own estate or inheritance taxes, often with much lower exemption thresholds. New York, Maryland, and Oregon are a few states where the state-level tax can apply to estates worth less than $7 million. That’s why many people outside of Texas face added complexity when passing property to heirs.

For Texans, there is no state-level estate or inheritance tax, which gives property owners here a unique edge. You don’t have to factor in an additional layer of tax on top of the federal estate calculation. That said, out-of-state assets or investments held in taxed states may still carry estate-related implications. Keeping an updated record of where your property is held and titled helps you plan with greater clarity.

Strategies To Reduce Your Estate Tax Liability

For property owners in Texas, large estates come with more than sentimental value—they can push you into federal tax territory if you’re not paying attention. While the majority of families stay below the exemption limit, property-heavy portfolios and market growth can change that quickly. Fortunately, a few key strategies help reduce taxable estate size and set your heirs up for smoother transfers.

Use The Federal Estate Tax Exemption Strategically

Every year, the IRS adjusts the federal estate tax exemption based on inflation. For 2024, the threshold stands at $13.61 million per individual and $27.22 million for married couples. Staying below that line means no federal estate tax applies. Some families time transfers or restructure holdings to keep their total estate within the exemption window. For example, dividing assets between spouses and tracking appreciated property separately can give you more control over how values stack up against the exemption.

Give Assets While You’re Still Alive

Gifting can shrink your estate over time without triggering tax penalties. The IRS allows individuals to gift up to $17,000 per recipient in 2024 without filing a gift tax return. That number doubles to $34,000 for married couples. Spreading gifts across multiple years and recipients keeps things clean and avoids chipping away at your lifetime gift and estate tax exemption. For property owners, gifting could mean transferring a partial interest in land or giving cash tied to future real estate expenses.

Consider Irrevocable Trusts For Real Property

An irrevocable trust moves assets out of your taxable estate. Once the property goes in, you no longer control it directly, but that’s the point! These trusts freeze the asset’s value for estate tax purposes and keep any future appreciation out of the IRS’s reach. Let’s say a land parcel is projected to increase in value due to nearby development. Transferring that property to a properly structured trust now could lower your estate’s total valuation later, protecting long-term gains from being taxed at transfer.

Structure Ownership And Beneficiary Transfers

Property held in joint tenancy with rights of survivorship transfers directly to the co-owner when one party passes away. That type of structure helps avoid probate and can keep some assets outside of the taxable estate. Similarly, designating beneficiaries for financial accounts and retirement plans ensures those assets move directly to heirs, sidestepping estate valuation entirely.

Use Comparable Sales The Right Way

Tax authorities often rely on comparable home sales to assign value to a property. But raw sale prices don’t tell the whole story. Accurate assessments require adjustments for square footage, age, upgrades, and even neighborhood features. For example, if your property includes an updated kitchen or sits on a larger lot, those differences need to be quantified mathematically. 

Look Into Exemptions For Special Property Types

Some types of real estate qualify for additional estate tax relief. Primary residences, farms, and certain business-use properties can trigger federal or state-level exemptions, depending on how they’re structured and passed down. For instance, a family-owned ranch that continues in agricultural use after inheritance may qualify for a reduced valuation under IRS Section 2032A. 

Charitable Property Donations: Giving Back While Lowering Your Tax Burden

Charitable giving can reshape the way your estate is taxed. The IRS excludes assets donated to qualified nonprofit organizations from your taxable estate, which means property passed to a charity won’t count toward your estate’s final value. With the right strategy, that kind of gift can help reduce or even zero out your estate tax bill.

Donate Real Property Directly To A Nonprofit

Real estate can be donated outright to a 501(c)(3) nonprofit and removed from your estate valuation. That reduction shrinks the taxable portion and gives you more control over what goes to your family versus what gets taxed.

Take a land parcel or second home, for example. When willed to a qualified nonprofit, the property’s market value is deducted from your total estate. However, the benefit only sticks if you’ve documented your intent and backed it up with a qualified appraisal. These steps make sure the IRS doesn’t raise questions later and keep the donation on track.

Use A Charitable Remainder Trust To Keep Income Flowing

Some property owners want to reduce their estate’s value but still benefit from the asset while they’re living. A charitable remainder trust (CRT) makes that possible. This tool lets you place real estate into a trust, draw income from it over time, and direct the remaining value to a nonprofit later. That setup creates a projected charitable deduction, based on how long the trust pays out and what’s expected to transfer. 

Time The Transfer And Appraisal The Right Way

The IRS doesn’t just take your word for a property’s value. This is why donations need to be backed by professional appraisals, and your charitable intent must be spelled out. Those details affect how much of the estate gets deducted and whether the transfer qualifies at all. Thankfully, planning keeps the process smooth. Our team at Texas Tax Protest helps property owners weigh the pros and cons of direct donations versus trust-based strategies. We’ll show you where each option fits within the larger goal: keeping more of your legacy in the right hands.

Final Thoughts

Federal estate taxes don’t impact every estate, but property owners with high-value real estate, or plans to pass that real estate on, have more reason to pay attention. Strategies like lifetime gifting, charitable donations, and trust planning aren’t just for the ultra-wealthy. They’re practical tools for Texans looking to protect what they’ve built and keep more of their estate in the family.

Knowing how the numbers work is a crucial first step. From federal exemptions to adjusted property valuations, every detail plays a role in shaping your estate’s tax exposure. Our team at Texas Tax Protest breaks down those details clearly and applies strategies that make sense for your property and long-term goals. If you’re looking to reduce estate tax exposure without giving up control, we’re here to help.

Read more: 

• Texas Property Tax Rates Explained: What Every Homeowner Should Know
• Texas Property Tax Rates by City: Where Does Your Area Rank?
• Texas Disaster Declarations and How They Impact Your Property Taxes

Frequently Asked Questions About Avoiding the Federal Estate Tax on Property

What is a step-up in basis, and how does it impact estate tax?

A step-up in basis allows inherited property to be valued at its current market value when the owner passes away, not what was originally paid. This adjustment can sharply reduce capital gains tax if the property is sold after inheritance. For estate tax, a step-up can minimize potential gains that would be taxed, streamlining the transfer process for heirs and potentially decreasing overall tax liability.

Can life insurance proceeds be exempt from federal estate tax?

Life insurance policies typically pay beneficiaries directly and aren’t subject to income tax. If the policy is owned by the deceased at the time of passing, however, the proceeds are included in the estate and may be subject to federal estate tax. Ownership structures, like trusts, can help keep life insurance proceeds outside the taxable estate—something many families use for estate planning.

What are the implications of gifting property before death?

Gifting property while alive can reduce the size of your taxable estate, potentially lowering estate tax exposure. Federal rules allow certain amounts to be gifted each year tax-free; anything above may tap into your lifetime exemption. Large gifts made shortly before death can trigger a “look-back” period for tax calculation purposes, so consulting with a knowledgeable advisor on timing is always smart.

What are the rules for non-U.S. citizens regarding estate tax?

Non-U.S. citizens face stricter rules, with significantly lower estate tax exemptions on U.S.-based property. Estate tax may apply to real estate or other tangible assets located stateside, even if the owner resides elsewhere. Planning ahead by structuring ownership or trusts is crucial for non-residents who wish to minimize exposure.

How does the generation-skipping transfer tax (GSTT) relate to estate tax?

GSTT is an extra layer of federal tax on transfers that skip a generation, such as gifts to grandchildren. It’s separate from the standard estate tax, with its exemption limit. Families using trusts or planning to transfer wealth long-term should keep both taxes in mind, as combined strategies can optimize tax efficiency across generations.

How is farmland or other special-use property treated under estate tax law?

Farmland and certain special-use property can be valued based on their current use, rather than market value, for estate tax purposes. If the property continues its special use—like agriculture or ranching—heirs may qualify for a lower taxable value. Strict requirements and time limits apply, so proper documentation and ongoing compliance are mandatory.

What types of property are subject to federal estate tax?

The federal estate tax covers a wide array of assets: real estate, cash, securities, business interests, retirement accounts, collectibles, and even certain insurance policies. Both tangible and intangible assets are included when calculating the estate’s overall value. Knowing what counts can help families prepare, make informed decisions, and keep more of their legacy intact.

Sources:

1. Internal Revenue Service. (n.d.). Estate tax. U.S. Department of the Treasury. Retrieved June 10, 2025, from https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax 
2. York, E. (2023, May 3). Does your state have an estate or inheritance tax? Tax Foundation. https://taxfoundation.org/data/all/state/state-estate-tax-inheritance-tax-2023/ 
3. Legal Information Institute. (n.d.). 26 U.S. Code § 2032A – Valuation of certain farm, etc., real property. Cornell Law School. Retrieved June 10, 2025, from https://www.law.cornell.edu/uscode/text/26/2032A