What is in this article?:
- Major changes made in estate tax planning
- Caps the top tax rate
• The president signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on Dec. 17, 2010.
• One part of this major tax bill was the reinstatement of the estate tax exemption.
• A major change was made in estate tax planning due to the bill.
2010 was the year there was no federal estate tax. However, along with that, we were limited in the amount of available step-up in the basis of inherited assets.
An estate was limited to a $1.3 million step-up unless the assets went to the spouse and then a $3 million step-up was available. The other assets were inherited with a carry-over basis.
For example, assume the decedent paid $19,000 for land in 1920, but it is worth $800,000 at the time of death. The heir to the property would only receive a $19,000 basis. Consequently, if they sell the property for $800,000, they will recognize a $781,000 taxable gain.
The president signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on Dec. 17, 2010. One part of this major tax bill was the reinstatement of the estate tax exemption.
While estates for 2010 decedents were not subject to the estate tax, this bill allows them to elect to use a $5 million exemption and have a stepped-up basis. For many estates, this is superior to no estate tax and a carry-over basis.