State Estate Tax in 2026: Exemptions, Rates and How Private Business Interests Are Valued 

Introduction: Why State Estate Tax Deserves a Closer Look in 2026

A family can clear the federal estate tax exclusion with room to spare. They can still owe their state a check. That gap is why this guide exists. Twelve states plus DC run their own estate tax in 2026. Each one sets its own exemption, rate table and filing rules.

For most families, the federal number is no longer the real limit. Transaction Capital LLC works with estates, trustees and family offices nationwide. For an estate with a closely held company, an LLC stake or a family partnership, one thing often decides whether the state taxes it: what that stake is actually worth.

This guide covers the 2026 state landscape, explains why gift and estate tax valuation sits at the center of the math, and shows how an appraiser values a private business stake.

State Estate Tax 2026: Key Takeaways

• Twelve states and DC charge their own estate tax in 2026. Exemptions run from $1 million in Oregon to $15 million in Connecticut.
  
• The One Big Beautiful Bill Act (OBBBA) made the federal exclusion permanent for 2026. It set the amount at $15 million per person, or $30 million per couple. An estate can clear that federal line and still owe a state.
  
• Washington changed its rate table mid-year. The date of death sets which exclusion and bracket apply.
  
• Estate tax and inheritance tax are not the same. Only five states still tax the people who receive an inheritance, not the estate itself.
  
• For a private company, LLC or partnership interest, the tax bill depends on a documented fair market value for that specific interest, not on book value.
  

Why Does State Estate Tax Still Matter in 2026?

Most estate tax coverage focuses on the federal exclusion. That focus can mislead. Congress’s OBBBA set the federal exemption at $15 million per person for 2026. Because of that jump, few estates will ever owe federal estate tax.

State rules run on a separate track. Many states set their own line far below the new federal number. Take an $8 million estate. It sits well under the federal exclusion. Yet it tops the 2026 line in Oregon, Massachusetts, Minnesota, Illinois, Maryland, Rhode Island, Hawaii, Washington and New York. Maine and Vermont also set their line below $8 million. An estate that size can trigger a filing there too.

In each of those states, the family may need to file a state return. They may owe a payment, even when the IRS has no claim at all.

Which States Have a State Estate Tax in 2026?

Twelve states impose an estate tax in 2026: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. DC runs its own version too. It is listed separately since it is not a state.

These figures reflect statutory amounts as of early 2026. They include Washington’s mid-year change and Maine’s inflation bump.

What Else Should You Know About These State Rules?

• Connecticut ties its line to the federal figure. It charges a flat 12% rate, with a cap on the total tax owed.
  
• Maryland is the only state here with both an estate tax and a separate inheritance tax (more on that distinction below).
  
• Massachusetts sets a $2 million line. A credit applies for deaths on or after January 1, 2023. It wipes out the tax at or below that level, and softens it for larger estates.
  
• New York uses a “cliff” rule. Once the taxable estate passes 105% of the exclusion, the exclusion vanishes. Tax then applies to the whole estate, not just the excess.
  
• Washington needs extra care in 2026. A 2025 law pushed the top rate to 35%. A 2026 law then reversed that for deaths on or after July 1, 2026. It restored a 10% to 20% bracket and a $3,000,000 exclusion. Deaths from January 1 through June 30, 2026 still used the old $3,076,000 exclusion and 35% top rate.
  

Is Estate Tax the Same as Inheritance Tax?

No, and the mix-up trips up many families. Estate tax is charged against the estate itself, before assets go out, the way all twelve states above and DC work. Inheritance tax is charged to the person who gets the assets, and the rate often depends on how close they were to the decedent.

Only five states still collect an inheritance tax in 2026: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Maryland stacks both taxes together, so an estate there can get taxed twice. Most inheritance tax states exempt spouses and children, so the tax mainly hits distant heirs.

How Did the Federal Estate Tax Exemption Change for 2026?

OBBBA became law on July 4, 2025, canceling a sunset that would have roughly halved the old exemption at the end of 2025. It set the federal exemption at $15 million per person for 2026, indexed for inflation, with no end date in the statute.

A few related numbers matter for planning:

• The 2026 gift tax exclusion is $19,000 per recipient, apart from the lifetime exemption.
  
• The GST tax exemption also sits at $15 million per person for 2026.
  
• Portability lets a surviving spouse add any unused exemption from the first spouse to their own. That is how a couple can reach $30 million combined.
  
• Most states with their own estate tax, aside from Hawaii and Maryland, skip that same portability. Each spouse’s state exemption often stands alone.
  

A $15 million federal line removes most federal exposure for a $6 million or $8 million estate. It changes nothing in Oregon or Massachusetts.

Why Does Valuation Drive Your State Estate Tax Result?

Every state and federal estate tax bill starts with the value of what the decedent owned. Some assets are simple. Cash is worth its face amount. Listed stocks trade at a quoted price on the valuation date.

A closely held company is a different problem. So is an LLC stake, a partnership interest, a family limited partnership stake, restricted stock, or a real estate holding entity. No public market sets the price, so an appraiser must estimate what a buyer would pay. That number becomes a line on the tax return. A state or the IRS may examine it, and it can tip an estate over a key line.

What Is the Legal Standard for Fair Market Value in Estate Tax?

For federal estate and gift tax, fair market value is the price at which property would change hands. The buyer and seller are both willing, and neither feels forced to act, with both aware of the relevant facts. This standard assumes a hypothetical buyer and seller, not the actual family members or partners involved.

For private companies, the key reference is IRS Revenue Ruling 59-60. It lists factors to weigh, not a fixed formula:

The nature and history of the business.

1. The economic outlook generally, and for the specific industry.
   
2. The book value of the stock and the company’s financial condition.
   
3. The company’s earning capacity.
   
4. Its dividend-paying capacity.
   
5. Whether goodwill or other intangible value exists.
   
6. Prior sales of the stock and the size of the block being valued.
   
7. Market prices of publicly traded companies in a similar line of business.
   

No single factor controls the outcome. The weight given to each depends on the facts.

Is Book Value the Same as Fair Market Value?

Rarely. Book equity follows accounting rules. Those rules often record assets at historical cost. They leave out intangibles the company built itself, such as customer ties, software, brand strength and a trained workforce. A profitable service firm can carry modest book equity and still be worth several times that number.

The reverse happens too. A company with heavy accounting assets, weak earnings, high debt or old equipment can be worth less than its balance sheet suggests. Treating book value as a shortcut for fair market value is a fast way to get an estate valuation wrong.

What Are the Three Approaches to Valuing a Private Business Interest?

Valuation practice relies on three main approaches. A qualified appraiser weighs the approaches that fit the facts, and explains in writing why any approach was set aside.

Income Approach

The income approach turns expected future benefits into a value today. Two techniques come up most:

• Discounted cash flow (DCF): The appraiser projects free cash flow over a set period. They discount it at a rate that reflects business risk, and add a terminal value for everything past that period. DCF fits businesses with steady, contracted or recurring revenue.
  
• Capitalization of earnings: The appraiser divides one normalized level of earnings by a capitalization rate. This fits mature, stable businesses.
  

Small shifts in the discount rate, growth rate or terminal value can move the result a lot. Reviewers check how each input was built, and whether it matches the company’s own track record.

Market Approach

The market approach looks at real pricing data from comparable businesses. Two sources feed it:

• Guideline public companies: The appraiser pulls multiples, such as value to revenue or value to EBITDA, from listed peers. They adjust for size, growth and risk.
  
• Guideline transactions: Prices paid for similar private companies give a second reference point. Deal details are often limited, though.
  

Comparability is the hard part. Two firms can share an industry label and still differ sharply in scale, margin, customer mix and growth. A multiple from a large public firm often needs adjustment before it says much about a small private one.

Asset Approach

The asset approach restates assets and debts at today’s fair value. Equity value is simply the difference. It carries the most weight when value comes mainly from what a firm holds. Examples include a holding company, a family partnership with marketable securities, or a firm that owns commercial real estate. For a stable operating business with real goodwill, it tends to understate value and often gets less weight.

How Do You Get from Enterprise Value to the Value of the Specific Interest Owned?

Say a company has an equity value of $10 million. The decedent held 20% of it. Simple math gives $2 million. But that number is just a starting point. The real question is what a buyer would pay for that exact 20% stake, with its own rights and limits.

Several things shape the answer. Does the stake carry a vote? Can the holder pick managers or force a sale? Do transfer limits or a right of first refusal apply? Does other equity rank ahead? What information can the holder see? Two adjustments often enter the picture here.

What Discounts Apply to Minority and Illiquid Business Interests?

Discount for Lack of Control (DLOC)

A minority owner often cannot set pay, approve a payout, steer strategy, approve a sale, or time a liquidity event. DLOC reflects the lower price a buyer would pay for a stake with those limits. Whether it applies depends on the firm’s governing documents and how the valuation was built. If the analysis already landed on a minority-basis value, a second DLOC cut would double count the same limit. A flat discount applied only because the stake sits below 50% is not defensible on its own.

Discount for Lack of Marketability (DLOM)

Private shares cannot sell on an exchange in days. A buyer has to be found, transfer limits may apply, and a sale or offering could be years away. DLOM accounts for that illiquidity.

Appraisers lean on hard evidence: restricted stock studies, pre-IPO studies, option-pricing models, plus company facts like holding period and distribution history. Courts push back on discounts built on a rounded guess with no study behind it. The Tax Court keeps asking for a real, reasoned basis.

Both discounts are conclusions drawn from facts, not default settings. Neither should be assumed before the work starts. See our guide to DLOC versus DLOM in business valuation for more on how appraisers size each one. A family limited partnership stake often carries both discounts at once, since an FLP stake is often a minority position that is illiquid by design too. Our FLP valuation guide for estate planning covers how that combination gets documented.

How Does IRC Section 6166 Help Business-Owning Estates?

Paying a full estate tax bill nine months after death can force a family to sell the business fast. Section 6166 of the tax code exists to stop that.

A closely held business that tops 35% of the decedent’s adjusted gross estate qualifies for relief. The executor can spread the tied tax over as long as 14 years. A lower rate applies to roughly the first $1.94 million of business value above the exemption, for 2026.

That 35% line is itself a valuation question, since clearing it depends on how well the business and the rest of the estate get valued. A related rule, Section 2032A, can value some farm or business real estate at its current use, below its highest-and-best-use value, within yearly limits.

Why Does the Valuation Date Matter for Estate Tax?

Value ties to one date. For federal estate tax, that is often the date of death. An executor may instead pick the alternate valuation date, six months later. That choice is only allowed if it cuts both the gross estate’s value and the tax owed. Assets sold or given out in that window get valued on the date they changed hands. Form 706, the federal estate tax return, is often due nine months after death. Each state sets its own deadline.

The date matters because facts change fast. A funding round, a lost customer, a new contract, a court ruling, a lawsuit or a buyout offer can all shift value. The appraiser weighs what was known, or knowable, on that one date. Later events can sometimes confirm what was already true then. They should never stand in for facts the buyer and seller actually had at the time.

What Are the Most Common Mistakes in Estate Valuations?

What Standards and Credentials Should a Private Business Valuation Follow?

Estate valuations often follow set professional standards, including USPAP (the Uniform Standards of Professional Appraisal Practice), SSVS 1 (the AICPA’s valuation standard), NACVA standards and IVS (International Valuation Standards). Common credentials in this field include ABV, ASA, CVA and MRICS.

A credential shows training. It is not a stand-in for sound method. A good report states the standard of value and the date, defines the exact interest, explains each method and its weight, and backs every discount with evidence.

Final Thoughts on State Estate Tax in 2026

State estate tax stays a real, near-term issue in 2026. Nine states set their line well below the new $15 million federal number. Where the estate holds a private business, that interest’s value often decides the outcome. It decides whether a return is due, the tax owed, and how well the number holds up under review.

A sound valuation names the exact interest, fixes the right date, applies the methods that fit, and backs any discount with real evidence. Transaction Capital LLC has completed more than 2,500 valuations across 35-plus industries, following Revenue Ruling 59-60 on every estate and gift tax job.

Flat-fee pricing varies by engagement type. You get a quote before any work starts.

Frequently Asked Questions About State Estate Tax in 2026

1. How many states have an estate tax in 2026?

Twelve states charge their own estate tax in 2026: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. DC charges one too, though it is not a state.

2. What is the federal estate tax exclusion for 2026?

The federal exclusion is $15 million per person in 2026, under OBBBA, with a top rate of 40%. Married couples can often shelter up to $30 million through portability.

3. What is Washington’s exclusion in 2026?

It depends on the date of death. The exclusion was $3,076,000, with a top rate up to 35%, for deaths from January 1 through June 30, 2026. It dropped to $3,000,000, with a 10% to 20% rate table, for deaths on or after July 1, 2026.

4. Can an estate owe state tax when it owes no federal tax?

Yes. State exemptions often sit far below the $15 million federal line. An estate can be fully exempt at the federal level and still owe state estate tax. That is especially true in states like Oregon, Massachusetts and Minnesota.

5. Is book value the same as fair market value?

No. Book value is an accounting number built on historical cost. Fair market value is what a hypothetical, informed buyer would actually pay. It rests on earnings, risk, market data and the exact rights tied to the interest.

6. Do discounts for control and marketability always apply?

No. A discount for lack of control or marketability applies only when the facts support it. The size of the discount should rest on real analysis, not a standard, rounded number.

7. Is inheritance tax the same as estate tax?

No. Estate tax is charged against the estate before it is distributed. Inheritance tax is charged to the individual beneficiary, and it often varies by relationship. Only five states still charge an inheritance tax in 2026: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

About Transaction Capital LLC

Transaction Capital LLC (TXN Capital) is a Delaware-registered, independent business valuation firm. We perform gift and estate tax valuations alongside 409A compliance and litigation support. Our work covers closely held businesses, LLC and partnership interests, minority interests and related assets, across more than 35 industries.

Every report follows Revenue Ruling 59-60, ties to a stated valuation date and standard of value. Our Pay After Draft Review guarantee means you see the full draft report before you pay anything, and post-valuation IRS audit support is included at no extra charge. Scope, fees and timing vary by job.

This article is educational only. It is not legal, tax or financial advice. State and federal estate tax rules change often. Confirm current exemptions, rates and deadlines with a qualified tax or legal adviser. You can also check with the relevant state revenue authority before you file or plan.