Economic analysis. Data through September 14, 2026.
Back in March, New York City Mayor Zohran Mamdani sent state lawmakers a memo proposing to cut New York’s estate tax exemption from $7.35 million to $750,000 and raise the top rate from 16% to 50%. I wrote about that proposal on X and the response told me something. Most New Yorkers have no idea how the estate tax they already live under actually works. The current version is unusual enough that it deserves its own breakdown. New York is the only state that can tax your entire estate from the very first dollar and the trigger sits just 5% above the exemption.
Two estate taxes, two very different sizes
Every New Yorker with meaningful assets is potentially dealing with two separate estate taxes. The federal exemption sits at $15 million per person and $30 million per married couple for 2026 after the One Big Beautiful Bill Act made those levels permanent. New York runs its own system on top of that with a basic exclusion amount of $7.35 million for deaths in 2026 which is up from $7.16 million in 2025 and rises with inflation each year. New York is one of 12 states with its own estate tax and Connecticut sets its exemption at the federal $15 million. New York sits at less than half of that with a rate schedule that runs from 3.06% up to 16% on taxable estates above $10.1 million.
| 2026 threshold | Federal | New York |
|---|---|---|
| Exemption per person | $15 million | $7.35 million |
| Exemption per married couple | $30 million | no portability |
| Taxed above the exemption only | yes | only up to 105% of it |
| Point where the exclusion vanishes | none | $7,717,500 |
| Rate schedule | 40% top rate | 3.06% to 16% |
Table 1. The two estate taxes a New York resident faces for deaths in 2026. New York's 16% top rate applies to taxable estates above $10.1 million.
The cliff
In every other estate tax system in the country including the federal one, only the amount above the exemption gets taxed. Die with $16 million federally and the IRS taxes $1 million, not $16 million. New York works that way only if you stay close to the line. Go past 105% of the exclusion, which is $7,717,500 for 2026, and the exclusion disappears entirely. The state then taxes the whole estate from dollar one using the full rate table. Estates between $7.35 million and $7,717,500 fall into a phase-out zone where the benefit shrinks so fast that the effective rate on each dollar over the line can run past 100%.
The math nobody believes until they see it
Take two neighbors. The first dies with an estate of exactly $7,350,000. New York’s bill is zero and the heirs receive $7,350,000. The second dies with $7,750,000 which is $400,000 more. That estate sits past the cliff so the exclusion is gone and the tax applies to all $7.75 million. Using the state’s rate table the bill comes to roughly $739,000 and the heirs receive about $7,011,000. The second family was $400,000 wealthier on paper and their heirs ended up with $339,000 less.
| Neighbor one | Neighbor two | |
|---|---|---|
| Estate at death | $7,350,000 | $7,750,000 |
| New York estate tax | $0 | about $739,000 |
| Heirs receive | $7,350,000 | about $7,011,000 |
| Wealthier on paper by | $400,000 | |
| Heirs end up with | $339,000 less |
Table 2. The worked example, using the state's rate table on the full estate once it is past the cliff.
It gets stranger right at the edge. Cross the cliff by a single dollar and the tax lands around $735,000 which is roughly double the $367,500 you’re over the exemption by. Run the numbers forward and an estate has to grow past roughly $8.14 million before the heirs net more than what a $7.35 million estate delivers tax free. That’s a dead zone of nearly $800,000 where every additional dollar of wealth makes your heirs worse off.
No portability between spouses
The federal system lets a surviving spouse inherit whatever exemption the first spouse didn’t use, so a married couple can shield $30 million with nothing more than an election on the first spouse’s estate tax return. New York offers no portability at all. If the first spouse dies and leaves everything outright to the survivor, the first $7.35 million exclusion is simply wasted. New York planners deal with this through credit shelter trusts that capture the first exclusion at the first death. It works but it means the difference between owing nothing and owing seven figures can come down to whether a couple saw a lawyer.
No gift tax, but a three-year lookback
New York repealed its gift tax so lifetime giving is the obvious pressure valve. Give assets away early and they leave your New York estate. The catch is the clawback. Taxable gifts made within three years of death get added back into the New York gross estate which kills the deathbed strategy for anything big. Annual exclusion gifts of $19,000 per recipient escape the addback since they don’t count as taxable gifts, but someone sitting at $7.6 million can’t fix the cliff problem with one large check written the month before they die. The bigger moves have to happen years ahead through sustained gifting, charitable bequests structured to land the estate under the cliff or simply spending the money while you’re alive.
The exit that makes the whole problem optional
There’s one more strategy and it’s the one the data says people actually use. The New York estate tax follows your domicile, not your birthplace. Die a Florida resident and New York can only reach real estate and tangible property you still keep in the state. The same $7.75 million estate that owed roughly $739,000 in New York owes zero in Florida which has no estate tax and no income tax. I went through the IRS migration data on who’s making that move and what it’s costing the state in a separate article (can be read here).
Where the proposal stands
The $750,000 exemption never made it into law. Governor Hochul ruled out the income tax increases and the final state budget in May closed the city’s gap with a new pied-à-terre tax on non-primary homes above $5 million, a pension payment delay and state aid instead. The estate tax survived 2026 untouched. The exemption stays at $7.35 million, the cliff stays at $7,717,500 and the top rate stays 16%. Whether that holds through the next budget cycle is a different question. What I’d tell anyone with an estate anywhere near $7 million is that the cliff is current law, not a proposal, and it punishes the people who ignore it a few hundred thousand dollars at a time.