The U.S. House of Representatives will vote perhaps as early as this week on legislation to extend the current estate tax rates permanently. Currently the tax rate is 45% of any estates in excess of $3,500,000. As previously discussed in past blogs, $3,500,000 was the tax exemption for 2009. In 2010 there will be no estate tax at all which means that no one will have to pay estate taxes no matter how large their estate is. In 2011, however, without some new legislation, the estate tax will go back to a rate of 55% on assets in excess of $1,000,000. This makes people a little nervous, especially in San Diego where home prices and values are much higher than elsewhere in the country.
All of this stems from the major tax overhaul enacted by President George W. Bush in 2001. Prior to 2001, the top tax rate on inheritances was 55% on estates in excess of $675,000. The law gradually decreased the tax rate and increased the tax exemption amount to the 2009 figures of 45% on estates over $3,500,000.
The bill in the House was introduced by Representative Earl Pomeroy from North Dakota. The bill would make permanent a 45% tax rate on inherited assets in excess of $3,500,000. It is predicted that the bill will pass in the House but whether it has enough support to pass the Senate is debatable. Many people favor a full and permanent repeal of the death tax. If the Senate does not pass the bill by the end of the year, the federal estate tax is scheduled to die for one year only to reappear on estates in excess of $1,000,000 in 2010.
The death tax affects a surprisingly small number of Americans. According to the IRS, in 2009 less than one-quarter of 1% had estates big enough to pay estate taxes. One of the reasons is undoubtedly that the wealthy take advantage of advanced estate planning techniques to reduce or eliminate estate taxes. Even the middle-of-the-road estate can benefit from some sort of estate planning. Contact us to see how. Look for furture blog postings on whether this new legislation becomes law.