Tuesday Tax Time – 2010: the Year to Die

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I know it’s a crass title, but this TTT speaks of the funkiness of our laws.  The estate tax, or death tax on your estate when you die, expired in 2009 (but not the gift tax, which is often tied to the estate tax).  And it’s currently scheduled to come back on January 1, 2011.  Weird.  So if you are going to die, 2010 is the year to do it (especially if you are rich and you have heirs).

Break it down, homey:

Pre 2010:  the Estate Tax Rate was 45% with a $3.5 Million exemption.

Post 2010:  the Estate Tax Rate will be 55% with $1 Million exemption.

Thoughts:

-No way Congress is going to let the Estate tax lapse – too much cash in it, so expect them to establish something and make it retroactive back to January 1, 2010.

-I’ve heard that the Republicans may have enough votes in the Senate to get a $5 Million exemption and a 35% tax rate instituted.  That would be good news for hefty estates everywhere.

-There is a twist to the estate tax in 2010: the “stepped up basis” rules do not apply in 2010.  That is, when someone dies, the heir gets a stepped up basis in the inherited property.  They get to consider the basis in the property they inherit to be valued on the date of death of the decedent.  That means they won’t pay as much gain on the subsequent sale of the property after inheriting it.  In the current law, that stepped up basis has gone away.  Not good.

Interesting to see where all of this will go, but you can be sure – there will be changes.  Anything you’ve heard?  Leave it in the comments.

Thanks, Jason M. Blumer, CPA

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