TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

Starting in 2011 widows and widowers can add to their own estate tax exemption the unused exemption of the spouse who died most recently. This provision, plus an increase in the exemption amount to $5 million per person, enables married couples together to transfer as much as $10 million tax-free to their children or other heirs, either by making lifetime gifts or through estate plans. This 2-year provision expires January 1, 2013

Here is a detailed Explanation of the Estate and Gift Tax Changes: 2010 Estate Tax *Basic exclusion amount: $5,000,000 Formerly called applicable exclusion amount Unified credit: $1,730,800 *Maximum tax rate: 35% Level where 35% rate begins: $500,000 But no tax until taxable estate + gifts > $5m * Step-up in basis: Full step-up, unless estate elects out of estate tax State death tax deduction: Still available on Line 3b (as it was in 2005-2009) *Due date: No earlier than nine (9) months after date of enactment *Carryover basis: Applicable only if estate elects out of estate tax *Max basis increase available: $1.3m (plus $3m for property passing to spouse) *Due date of new form (8939): No earlier than nine (9) months after date of enactment Penalty for failure to report to the IRS: $10,000 per failure ...

Here is a quick summary of the new Estate Tax rates signed into law December 17, 2010 2010 Estate Tax Exclusion amount: $5,000,000 Maximum tax rate: 35% Carryover basis: Option to elect carryover basis instead of estate tax treatment Gift Tax Exclusion amount: $1,000,000 (no change) Maximum tax rate: 35% (no change) 2011-12 Estate Tax Exclusion amount: $5,000,000 Maximum tax rate: 35% Gift Tax Exclusion amount: $5,000,000 Maximum tax rate: 35% (no change)

The IRS announced the following inflation adjustments for 2009: The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008. The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return file...