The "Troublesome" Conservative

By The Numbers: Who's Conservative Who's Not

Estate Tax and Stepped-up Basis

with 2 comments

In 2001, a progressive Federal Estate Tax became law of the land.  The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) would change the tax rate and annually increase the size of estate value minimums before estate taxes were applied.

It included what is known as the ‘sunset’ provision which the current rules expire at the end of 2010 and would revert back to pre-EGTRRA law. In the year 2010 there would be no Federal Estate Taxes (in 2009 the exemption before estate taxes were applied was $3.5 million per person with a maximum 45% tax rate).

So here we are in 2010 and (at least for now) there is no Federal Estate Tax for any one dying this year (individual State tax rates would still apply).

A permanent repeal for this year? Not likely. While Congress has been focusing on national health care, they let the estate tax issue expire. It’s anticipated this will be back on the front burner very soon.

So what are possible options?  1) Leave as is (no tax) with year 2011 rates going back to the 2002 level of only a $1million exemption and 55% tax rate. 2) Go back to the 2009 levels. 3) Increase levels beyond $3.5Million.  If rates and limits do change this year, Congress could make them retroactive to January 1st (i.e. apply taxes to decedents estates after death during the year) even if the law was changed late in the year. This maneuver most likely would trigger law suit actions.

But wait. There’s more. Along with disappearing federal estate taxes, also gone is the unlimited step-up in basis rule which could actually affect more people inheriting property. Had a death occurred in 2009, the basis (what the original purchase value was) is generally ‘stepped-up’ to the market value on the date of death and no capital gains tax is paid. If sold in the future for more, then tax on the gain would be subject to tax.

Heirs in 2010 have a maximum appreciation value of $1.3million to apply to the step-up in basis. An additional $3 million in appreciation can be passed to a surviving spouse.

Hopefully, good record keeping is kept so original cost basis can easily be established.

So now what to do? Maybe just wait and see. If estate planning has been done (i.e. special estate tax reducing trusts, etc) contacting your legal adviser might be a good idea for any questions.

In any event, estate planning, including succession planning for business owners should be done. At the very minimum, have a (current) will in place.  Life insurance can also be a very economical tool to use in the planning process.

Bottom line is to make your own plans now knowing that nothing in Congress is permanent or predictable!

William H. Hurst, EA, ATA (Licensed to practice before the IRS.)

Bill has been a tax accountant and tax planner for over 27 years.

His accounting office is located at:

407 South 9th Ave, Caldwell, Idaho 83605

Phone: 208.459.1044

Fax: 208.459.1084


Written by Bill Hurst/ LaFonda Merrick

June 19, 2010 at 6:38 am

Posted in Taxation

2 Responses

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  1. […] Barbara Boxer, Barney Frank, Al Gore, and more… Posted on June 17, 2010 by Bill Hurst The estate tax (click to see detailed article) has been phased out over the last few years. This year there is no […]

  2. […] Don’t be fooled, this is why the Democrats are bringing back the so-called “Death Tax” or the Estate Tax at the highest rates. This tax is “invisible”  to the average taxpayer. Taxpayers are not  […]

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