DC Estate Tax: $4.97M Exemption + Step-Down Schedule

The District of Columbia is one of 13 jurisdictions (12 states plus DC) that impose a state-level estate tax separate from the federal estate tax. The DC tax is codified at DC Code §47-3701 through §47-3722, administered by the DC Office of Tax and Revenue, and filed on DC Form D-76. For 2026, the exemption is $4.97 million per individual, indexed annually for inflation.

At first glance, $4.97M sounds generous — well above the $2M Massachusetts threshold and the $1M Oregon threshold. But DC residents are disproportionately concentrated in high-asset professions (federal executives, lobbyists, law-firm partners, foundation principals) with primary residences north of $1.5M and seven-figure 401(k) balances. The result is that DC's estate tax catches more estates than the headline number suggests — and the no-portability rule turns moderate combined estates into nine-figure problems for surviving spouses who never expected a tax bill.

The DC exemption: $4.97M in 2026, indexed annually

DC Code §47-3701 sets the filing threshold at $4 million for deaths in 2021, with annual inflation adjustments based on the Consumer Price Index for the Washington-Arlington-Alexandria metropolitan area. The progression of the exemption since the 2021 reset:

• 2021: $4,000,000 (statutory reset by the Estate Tax Adjustment Act of 2020)
• 2022: $4,254,800
• 2023: $4,528,800
• 2024: $4,873,200
• 2026: $4,970,000 (2026 indexed figure per OTR notice)

This is the per-individual amount. There is no automatic doubling for married couples — the lack of portability (discussed below) means each spouse's $4.97M operates independently and must be actively preserved by trust planning to be used.

The step-down history: 2018 to 2022 created planning confusion

For the three tax years immediately before the reset, DC tracked the federal estate tax exemption. That meant the DC exemption was approximately $11.18 million in the first of those years, $11.4 million in the second, and $11.58 million in the third — functionally identical to the federal threshold during the early TCJA window.

The DC Council passed the Estate Tax Adjustment Act (B23-733) as part of the FY 2021 Budget Support Act. Effective the following tax year, the DC exemption was reset to a flat $4 million — a step-down of approximately $7.58 million from the prior federal-coupled amount. The reset was driven by DC's revenue needs during the pandemic; the projected revenue impact was estimated at $20–$25 million annually.

The practical effect on estate planning was immediate. Couples who had structured trusts assuming an $11M+ DC exemption suddenly found themselves with a $4M floor. Bypass trusts that had been deliberately under-funded (because the surviving spouse's estate would still fall under the federal threshold) now faced DC exposure on the second death. Estates with deaths between November 2020 and February 2021 sat in legal gray areas that took months for OTR to clarify.

The DC rate structure: 12% to 16% on the excess only

DC computes its estate tax using a graduated rate table similar to Massachusetts and Vermont, derived from the old federal state death tax credit table that was repealed by EGTRRA in 2005. The key difference from Massachusetts: DC applies the graduated rates only to the taxable estate above the exemption, not to the entire gross estate. There is no cliff effect at $4.97M.

On a $6M DC estate (taxable estate of approximately $1.03M after the $4.97M exemption), the DC tax bill runs roughly $123,600. On a $10M DC estate (taxable estate $5.03M), the bill jumps to approximately $745,800. On a $15M DC estate ($10.03M taxable), the bill reaches roughly $1,546,000 — this is on top of any federal estate tax owed.

No portability between spouses: the planning trap

The federal estate tax allows a surviving spouse to claim the deceased spouse's unused exemption (DSUE) under IRC §2010(c)(4), effectively giving a married couple a $27.98M federal shelter in 2026. DC does not recognize portability. Each DC-resident spouse has a separate $4.97M exemption that must be actively preserved — or lost forever at the first death.

The most common DC estate planning failure: couples with $8M–$10M in combined assets leave everything to each other via the unlimited marital deduction. The first death triggers $0 in DC estate tax (marital deduction is unlimited). But the first spouse's $4.97M DC exemption is now wasted. When the surviving spouse dies with $8M–$10M of combined assets, the entire balance above $4.97M is subject to DC tax.

Worked comparison: $8M DC couple, with and without credit shelter trust

Robert and Helen, both DC residents, live in Cleveland Park. Their combined estate is $8M: $4.5M in his name, $3.5M in hers. Robert dies first.

Scenario A — no credit shelter trust: Robert leaves everything to Helen via his will. His estate owes $0 (unlimited marital deduction). Helen now owns $8M. When Helen dies five years later, her estate has $8M, an exemption of $4.97M, and a taxable estate of $3.03M. DC tax: approximately $416,000.

Scenario B — credit shelter trust funded with $4.5M at first death: Robert's will directs $4.5M to a bypass trust for Helen's benefit (income to Helen during life, principal to children at her death). The other portion of his estate goes outright to Helen. Robert's estate owes $0 (the bypass trust uses $4.5M of his $4.97M exemption; the rest passes via marital deduction). When Helen dies five years later with the appreciated bypass trust ($5.5M now, but excluded from her estate) plus her own $3.5M, her taxable estate is $3.5M — below her own $4.97M exemption. DC tax: $0.

The bypass trust saved this family roughly $416,000 in DC estate tax at a setup cost of $5K–$10K in legal fees. This is exactly the situation our position on state estate planning points to: state of residence is one of the largest single levers in estate tax outcome, and most Americans don't know this until the executor opens the bank statements.

Non-resident estates with DC property

DC Code §47-3701 reaches non-residents who own DC-situated real property and tangible personal property at death. A common scenario: a Virginia or Maryland resident owns a Capitol Hill rowhouse or a Georgetown investment property. At death, that DC-situated property is included in the DC estate tax calculation as a non-resident estate.

The non-resident estate tax is computed on a proportional basis:

1. Compute the hypothetical DC estate tax as if the decedent were a DC resident with the same worldwide gross estate.
2. Multiply by the ratio of (DC-situated property) / (worldwide gross estate).
3. That product is the non-resident DC estate tax owed.

Example: a Virginia resident dies with $10M of worldwide assets including $1.5M of DC real estate. Hypothetical DC tax on a $10M estate: approximately $745,800. Ratio: $1.5M / $10M = 15%. Non-resident DC tax owed: approximately $111,870.

The planning move for non-resident DC-property owners: hold the property through an LLC owned by an out-of-state trust. The decedent's direct interest at death is then an intangible LLC membership interest, not DC-situated real property. Intangible property of non-residents is generally not subject to DC estate tax. This conversion costs $2K–$5K in setup and avoids tens of thousands in DC tax on a single property — but should be done well in advance of death to avoid step-transaction challenges.

Federal-DC interaction: deduction, not credit

DC estate tax paid is deductible on the federal estate tax return as a debt of the estate under IRC §2053(a)(3). For estates large enough to owe federal tax (over the $13.99M federal exemption in 2026), the federal deduction partially offsets the DC bill at the marginal federal rate. On a $20M DC-resident estate paying $2.16M in DC tax, the federal return deducts $2.16M before computing the 40% federal tax, saving roughly $864,000 in federal tax. Net DC cost after federal deduction: $2.16M - $864K = approximately $1.30M.

For estates between $4.97M and $13.99M, no federal tax is owed, so the DC tax bill is unrecovered. This is the most common DC tax exposure window: estates between $5M and $14M owing 12–16% DC tax on the excess over $4.97M with no federal offset available.

Filing: Form D-76, due 9 months after death

DC estate tax returns are filed on Form D-76 with the DC Office of Tax and Revenue. The filing deadline is 9 months after the date of death — the same as the federal Form 706 deadline. A 6-month extension is available on request (Form D-77), but the extension is for filing, not payment. The estimated tax must be paid by the original 9-month deadline to avoid penalties.

DC requires a Form D-76 filing for any estate where the gross estate exceeds the exemption threshold, even if no tax is ultimately due (for example, because of charitable or marital deductions). Estates under the threshold can file a simplified non-taxable return (Form D-76EZ) to obtain a closing letter, which Maryland and Virginia title companies often require before transferring DC real property out of the decedent's name.

Lifetime gifting strategies for DC residents

DC does not impose a state-level gift tax. Lifetime gifts of any size are not taxed by DC (though federal gift tax rules still apply under IRC §2501). This creates an asymmetry: a DC resident can give away $4.97M during life without DC estate tax consequence, but if those assets remain in their estate at death, they consume the exemption.

The high-impact DC lifetime gifting strategies for $8M+ couples:

• Annual exclusion gifts: $19,000 per donee per donor for 2026 (federal §2503(b) limit). A married couple with 4 children can give $152,000/year tax-free. Over 10 years, that's $1.52M removed from the DC estate at zero tax cost.
• Spousal Lifetime Access Trust (SLAT): one spouse gifts up to $4.97M (using federal exemption) to an irrevocable trust for the other spouse's benefit. Removes the gifted assets and all future appreciation from both spouses' DC estates while preserving family access. Requires non-reciprocal trust structuring to avoid step-transaction risk.
• Direct payment of medical and tuition expenses: unlimited amounts paid directly to educational and medical providers under IRC §2503(e) are not gifts. For DC grandparents paying private school tuition for grandchildren, this can remove $200K+/year from the taxable estate.
• Charitable lead trusts: for DC residents with charitable intent and large appreciated assets, a charitable lead annuity trust (CLAT) can shift the gifted assets out of the DC estate while paying an annuity to charity for a term of years, with the remainder passing to family at the term's end.

Relocation: when does it actually save DC estate tax?

DC residents with $8M+ estates routinely consider relocating to Virginia (no state estate tax), Maryland ($5M estate threshold, plus a 0–10% inheritance tax depending on relationship), Florida (no estate or inheritance tax), or Delaware (no estate tax since 2018). The math is meaningful but not always decisive.

Virginia and Florida save the entire DC bill. Maryland saves only modestly because Maryland's own $5M threshold catches the same estates. For a $15M estate, the relocation to Virginia or Florida saves approximately $1.55M in DC estate tax — before considering income tax differences during life. Don't move states solely for estate tax. Family location, healthcare, climate, and SS/Medicare networks all dominate estate savings on most estates under $5M. But for $10M+ estates with no DC roots beyond historical residence, the relocation math is among the most decisive single levers available.

Common DC estate tax mistakes

• Assuming federal-coupled exemption: many DC residents (and even some local attorneys) still operate as if DC tracks the $13.99M federal exemption. The 2021 reset was permanent. The 2026 exemption is $4.97M, not $13.99M.
• Failing to fund a credit shelter trust at first death: the most expensive single mistake for DC couples with $8M+. By the time the surviving spouse files, the first spouse's $4.97M is gone.
• Holding DC real estate directly as a non-resident: Virginia and Maryland residents owning DC property without an LLC structure trigger non-resident DC estate tax exposure unnecessarily.
• Ignoring the 9-month filing deadline: DC charges interest and penalties on late-filed returns. Extension is for filing, not payment.
• Forgetting that DC has no gift tax: aggressive lifetime gifting is essentially free at the DC level (federal gift tax still applies above the $19,000 annual exclusion). DC residents underuse this tool relative to their estate sizes.

Decision framework: when DC residents need active estate planning

1. Combined assets under $4.5M (single) or $9.5M (couple with proper CST): standard will + beneficiary updates likely sufficient. No DC tax exposure.
2. $5M–$10M single / $10M–$15M couple: credit shelter trust at first death is the priority. SLATs and annual exclusion gifting reduce exposure for larger estates in this band.
3. $10M–$25M single / $15M–$30M couple: aggressive lifetime gifting through SLAT, GRAT, or CLT structures. Relocation to no-estate-tax state worth modeling.
4. Above $25M single / $30M couple: full sophisticated planning suite — dynasty trusts, ILIT, family LLC structures, charitable lead trusts. Relocation analysis nearly always wins on tax alone.

Key takeaways

• DC's 2026 estate tax exemption is $4.97M, indexed annually under DC Code §47-3701. Rates run 12% to 16% on the excess.
• No portability between spouses. Each spouse has a separate $4.97M exemption that must be preserved at first death via a credit shelter trust — or lost forever.
• The 2021 step-down from federal-coupled (~$11M) to $4M flat permanently restructured DC estate planning. Old trust documents drafted before 2021 need review.
• Non-residents owning DC real property face proportional DC estate tax. Holding the property through an LLC owned by an out-of-state trust converts the situs to intangible interest and removes the exposure.
• On an $8M DC couple's estate, a $5K–$10K credit shelter trust saves approximately $416,000 in DC estate tax compared to leaving everything to the surviving spouse outright.
• DC has no state-level gift tax. Lifetime gifting through annual exclusion gifts, SLATs, and direct medical/tuition payments under IRC §2503(e) is the most underused tool for $8M+ DC families.
• For $10M+ estates with no specific DC ties, relocation to Virginia, Florida, or Delaware saves the entire DC bill — though the move should be made for non-tax reasons first.