Impact of Estate Tax Lapse

Up until 2010, a person who died with assets in excess of an exemption amount determined by the federal government was charged an estate tax or “death tax” on the assets above the exemption amount.  In 2009, the exemption amount for an individual was $3.5 million.  As a result, an estate in excess of $3.5 million was charged a 45% tax rate on the amount of the estate that exceeded $3.5 million.  The estate tax exemption is unlimited in 2010; however, unless Congress amends the estate tax laws, the exemption amount is scheduled to be $1 million in 2011, and everything above the $1 million exemption amount will be taxed at a maximum rate of 55%.  There have been several proposals to amend the estate tax laws, but, to date, none of them have been passed by Congress.

Although there is no estate tax in 2010, the law currently imposes a 15% capital gains tax on appreciation of assets above a $1.3 million exemption amount when sold.  This article that appeared in the Wall Street Journal shows how smaller estates and a greater number of taxpayers are affected by the 2010 law.