Currently, the estate tax in the U.S. is in a unique position. The code was written so that every year until 2009 the tax would lessen, until 2010, where it would disappear completely. However, next year, 2011, the estate tax will come back with a vengeance to a much higher level.
For a more in-depth breakdown, in 2011, the exclusion will only be $1 million and the tax rate will rise from 45% to 55%. Under the Estate Tax Law for 2009 which excluded the first $3.5 million and with a tax rate of 45% on anything above that, only about 3% of all estates paid any Estate Tax at all. And in 2010, there is no longer a “stepped up basis” on inherited assets: there is now a “carry over” basis. If you inherit anything at all before or after 2010, you receive a stepped up basis on the value of the asset so you don’t pay any Capital Gains Taxes. Read more here.
So, if someone has an elderly parent with a large estate and they die, usually the estate is taxed up to 50%. If this happens in 2010, that tax is zero. This of course creates some theoretical chaos, as those aware of this tax have an unpalatable inheritance incentive.
What does this loophole mean to you and what you could inherit over the next few years? Make an appointment Adam J. Tobin to better understand this tax code and figure out your next step. For a free consultation email Adam at firstname.lastname@example.org or call 978-725-9083.