New York’s Estate Tax Has a Cliff. A $7.4 Million Estate Owes Nothing and a $7.8 Million Estate Owes Roughly $700,000 on the Whole Thing, Because Crossing 105% of the Exemption Erases It
Two widowed New York sisters died months apart with estates just $400,000 apart, yet one family paid nothing and the other owed Albany a staggering bill. A hidden threshold in state law explains why, and a simple will clause could…
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Consider two widowed sisters who live a few towns apart in New York and die within months of each other in 2026. Both had spent decades in the same kind of house, held the same kind of index funds, and named their children as heirs. One estate was worth $7.4 million. The other was worth $7.8 million.
Each estate paid $50,000 in funeral and administration costs. The first estate then owed New York nothing. The second wrote Albany a check for $739,200, and the children of the richer sister inherited less than their cousins did.
New York Takes Back the Whole Exemption at 105%
New York imposes its own estate tax on every resident deceased person under N.Y. Tax Law § 952(a). For deaths in 2026, the basic exclusion amount is $7,350,000. That figure is indexed to inflation each year under § 952(c)(2)(B).
The exemption works as a credit, and the credit behaves strangely. Under § 952(c)(1), an estate at or below the exclusion gets a credit equal to its entire tax, so it owes zero. An estate that exceeds the exclusion by up to 5% gets a reduced credit. And the statute says clearly that “no credit shall be allowed to the estate of any decedent whose New York taxable estate exceeds one hundred five percent of the basic exclusion amount.”
For 2026, 105% of the exclusion is $7,717,500. One dollar above that line, the estate pays tax on every dollar, starting from the bottom of the rate table.
The federal picture plays no part here. Since the 2026 federal basic exclusion is $15,000,000, neither sister’s estate owes the IRS anything.
Running Both Estates Through the Rate Table
New York’s taxable estate is the gross estate minus the deductions allowed federally, including debts, funeral costs, and administration expenses, per N.Y. Tax Law § 955(a). The $50,000 deduction is our assumption for both estates; neither sister was married at death, so no marital deduction applies.
The $7.4 million estate: $7.4 million minus $50,000 leaves a taxable estate of $7,350,000. That falls exactly at the exclusion. The rate table would produce $684,800 of tax, and the credit wipes out all of it. Tax due: $0.
The $7.8 million estate: Subtract $50,000 and the taxable estate is $7,750,000. That tops the $7,717,500 threshold, so the credit is zero. The bracket for estates over $7,100,000 but not over $8,100,000 is $650,800 plus 13.6% of the excess over $7,100,000. The excess is $650,000, and the tax comes to $739,200.
| Estate | Taxable estate | NY tax | Heirs receive |
|---|---|---|---|
| $7.4 million | $7,350,000 | $0 | $7,350,000 |
| $7.8 million | $7,750,000 | $739,200 | $7,010,800 |
That works out to an effective rate of about 9.5% on the whole estate. The extra $400,000 of assets cost the heirs $339,200 in net inheritance.
A $400,000 Charitable Gift Leaves the Heirs Richer
The fix was available in the will. Charitable gifts are deductible under the federal rules New York adopts, and Internal Revenue Code § 2055 appears in the cross-references in § 955(d). A clause leaving $400,000 to charity drops the second estate’s taxable estate to $7,350,000, back to zero tax.
Her children would then receive $7,350,000 instead of $7,010,800. The charity gets $400,000, the state gets nothing, and the family keeps $339,200 more than it did by doing nothing. New York estate attorneys draft these as formula clauses: give charity the smallest amount needed to bring the taxable estate down to the exclusion, and only if the estate lands near the threshold. (The formula clause is one of several ownership and beneficiary moves we put in a free estate checklist for exactly this kind of near-cliff situation.)
Lifetime gifts also work, with a delay. New York adds back taxable gifts made during the three year period ending on the decedent’s date of death under § 954(a)(3). Gifts made earlier than that fall out of the New York estate.
Four Moves for Estates Near $7.7 Million
- Estimate your New York taxable estate every January. Total the house, brokerage accounts, IRAs, and life insurance you own, subtract expected debts and costs, and compare the result with that year’s exclusion and its 105% line.
- Ask your estate attorney for a formula charitable clause. It only kicks in when the estate lands in the danger zone, and it costs nothing if the estate stays below it.
- Start gifting at least three years out. Annual gifts to children made more than three years before death reduce the New York estate permanently.
- Tell your executor the filing rule. Under § 971(a)(1), a resident’s estate must file a New York return when the federal gross estate plus included gifts exceeds the basic exclusion amount, even if no federal Form 706 is due.
Remember This Number: $7,717,500
For a New Yorker who dies in 2026, a taxable estate of $7,717,500 is where the exemption disappears. Cross it by even $32,500 and the bill comes to $739,200.
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Vilma Rios is a tax professional, tax researcher, and financial writer with more than 15 years of experience in tax and accounting. Her work spans federal tax research, financial journalism, retirement planning, investment taxation, capital gains, inherited assets, and tax education. She specializes in translating complex tax and financial topics into clear, practical information that helps individuals, families, retirees, and investors make informed decisions.
She has presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as "Your Tax Geek," Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
