Arizona Estate Tax Limit 2026: Planning for the New Permanent Exemption
Arizona has no state estate tax and hasn't since 2005. What actually matters for Arizona residents is the federal exemption, and that number just changed in a way most estate plans weren't built around. The federal estate and gift tax exemption was scheduled to be cut roughly in half at the end of 2025. That sunset didn't happen. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently raised the exemption to $15 million per person for 2026, indexed for inflation going forward. Estate plan built around a shrinking exemption? It's now built around the wrong number.
Key Takeaways
- Arizona has no state estate tax, inheritance tax, or gift tax, and hasn't since the legislature repealed it in 2006, effective for deaths after 2005.
- The federal estate and gift tax exemption is $15,000,000 per person for 2026 ($30 million for a married couple using portability), not the roughly $7 million pre-OBBBA law projected.
- The TCJA sunset that was supposed to cut the exemption in half at the end of 2025 was permanently repealed, not extended. There is no scheduled future reduction under current law.
- The exemption is indexed for inflation starting in 2027, using 2025 as the base year, so it will continue rising rather than reverting.
- Portability isn't automatic: a surviving spouse only gets a deceased spouse's unused exemption if the estate files Form 706 within nine months of death, even if no tax is owed.
- Only 12 states and D.C. impose their own estate tax, with 5 more imposing a separate inheritance tax (Maryland has both); Arizona residents who own property in one of these states may still face state-level exposure regardless of the federal number.
Arizona's estate tax: repealed, not just low
Arizona's estate tax used to be a "pick-up tax," meaning it equaled whatever credit the federal government allowed for state death taxes. When federal law eliminated that credit in 2005, Arizona's estate tax had nothing left to calculate, and ADOR's own estate tax forms page confirms there has been no Arizona estate tax since January 2005. The Arizona legislature made the repeal explicit the following year: Governor Napolitano signed SB 1170 in May 2006, and the legislature's own summary of that bill confirms it repealed the estate and generation-skipping transfer tax outright. There's also no separate inheritance tax and no gift tax at the state level. Arizona residents deal with exactly one estate tax system: the federal one.
What actually changed under OBBBA
Before OBBBA, the federal exemption was on a collision course with a cliff. The Tax Cuts and Jobs Act had temporarily doubled the exemption starting in 2018, but that increase was scheduled to expire at the end of 2025, which would have cut the exemption roughly in half, from an inflation-adjusted $13.99 million in 2025 down to somewhere around $7 million. OBBBA changed that outcome entirely. Per the IRS's own "What's New" page for estate and gift tax, the law "amends § 2010(c)(3) by increasing the basic exclusion amount to $15,000,000 for calendar year 2026." That's not an extension of the old exemption, it's a new, higher, permanent baseline, with no sunset date attached. Starting in 2027, the $15 million figure is indexed for inflation, using 2025 as the base year, so it climbs from here rather than resetting downward.
What this means if your estate is under $15 million
For the substantial majority of Arizona households, this changes the practical urgency of estate tax planning. An individual with a $10 or $12 million estate, who under the old projected sunset might have owed federal estate tax on the excess over roughly $7 million, now owes nothing at the federal level. A married couple can shelter up to $30 million combined through portability. This doesn't mean estate planning stops mattering, probate avoidance, guardianship designations, and beneficiary coordination are still worth doing regardless of estate size, but the tax-driven urgency that dominated planning conversations through 2024 and early 2025 has genuinely eased for most families.
What this means if your estate is near or above $15 million
Estate close to or above the new threshold? Three things are worth confirming with your advisor:
- Gifts made under the old exemption are still valid. The IRS's anti-clawback regulations mean lifetime gifts sheltered by the higher pre-2026 exemption don't get retroactively taxed now that the exemption has changed again.
- You may have more exemption capacity than you think. Used most of your exemption through lifetime gifts before 2026? The jump to $15 million per person means you likely have additional room now.
- Portability still requires a timely filing. Per IRS guidance on estate tax FAQs, a surviving spouse only receives a deceased spouse's unused exclusion (DSUE) if the estate files Form 706 within nine months of death (or within an approved six-month extension via Form 4768). This applies even when the estate is well under the filing threshold and owes no tax, filing solely to preserve portability is a common and often overlooked step.
The current Form 706 instructions walk through the mechanics of the portability election in detail, and it's a filing worth discussing with your executor in advance rather than discovering nine months too late.
Arizona isn't the only state that matters if you own property elsewhere
Because Arizona doesn't tax estates, it's easy to assume the state-level question is settled once you confirm Arizona residency. That's true for Arizona residents whose property is entirely in Arizona, but 12 states and Washington, D.C. still impose their own estate tax, and five more states impose a separate inheritance tax instead (Maryland is the only state with both), several with exemption thresholds far below the federal $15 million figure. The ACTEC State Death Tax Chart, maintained by the American College of Trust and Estate Counsel, tracks these state-by-state thresholds and directly confirms Arizona's repeal alongside the states that still tax estates. Own a vacation property, a second home, or investment real estate in a state like Oregon, Massachusetts, or Washington? That property can trigger a state estate tax obligation even while you personally remain well under the federal exemption as an Arizona resident.
What business owners and real estate investors should watch for
A permanently higher federal exemption changes the calculus on lifetime gifting strategies that were designed under time pressure. Accelerated gifts of business interests or investment property into irrevocable trusts specifically to beat the anticipated 2026 sunset? That planning still stands and the assets remain properly sheltered, but the urgency to repeat that strategy for the remaining balance of your estate has genuinely decreased for most estates. For real estate investors holding property across state lines, the state-level exposure discussed above deserves a fresh look now that the federal number has moved. Our Estate Planning, Trust & Entity Formation team reviews existing trust structures against the new exemption rather than assuming last year's plan still fits, and our Strategic Tax Advisory and Preparation team coordinates the income tax side of any gifting or basis planning alongside it.
Reviewing your plan against the current law
The estate plan that made sense in 2023 or 2024, built around a shrinking exemption and a hard 2026 deadline, was built around law that no longer exists. That's not a reason to panic, but it is a reason to confirm your documents, trust funding, and portability strategy actually reflect where the law landed rather than where everyone expected it to go. For a deeper look at the estate planning mistakes that most commonly cost heirs money regardless of exemption size, our guide to the seven most common estate planning errors is a useful next read. Ready to review your specific situation? Our Accounting & Business Performance team can coordinate with your estate plan on the financial side, and you can book a free discovery call to walk through what the new exemption actually means for your estate.
Frequently Asked Questions
Does Arizona have an estate tax in 2026?
No. Arizona has had no state estate tax since 2005, and the legislature formally repealed it via SB 1170 in 2006. Arizona also has no inheritance tax or gift tax.
What is the federal estate tax exemption for 2026?
$15,000,000 per individual, or effectively $30,000,000 for a married couple using portability. This is a permanent figure under the One Big Beautiful Bill Act, not a temporary one, and it's indexed for inflation starting in 2027.
Did the federal estate tax exemption really sunset at the end of 2025?
No, and this is the most common misconception right now. The sunset was scheduled under prior law but was permanently repealed by OBBBA before it took effect. The exemption increased rather than decreased for 2026.
Do I still need to file an estate tax return if I'm under the exemption?
Only if you want to elect portability for a surviving spouse. Filing Form 706 within nine months of death (or a valid extension) preserves the deceased spouse's unused exemption even when no tax is actually owed.
Can gifts I made under the old, lower 2025 exemption be taxed retroactively now that the number changed again?
No. IRS anti-clawback rules protect gifts made under a higher exemption from being penalized if the exemption later changes, and with the exemption now higher rather than lower, this concern is largely moot going forward.
If I live in Arizona but own property in another state, could that state tax my estate?
Possibly. Twelve states and Washington, D.C. impose their own estate tax, and five more states impose a separate inheritance tax, several with exemption thresholds well below the federal $15 million figure, so out-of-state property can create exposure that Arizona residency alone doesn't eliminate.
