November 7, 2014

Estate Tax in 2015

When Congress averted the fiscal cliff a few years ago, enough votes were garnered so as to make the federal estate tax "permanent."

Congress also established that the federal estate tax would be pegged to inflation. Thus it has steadily been increasing the past couple of years (see chart below). The IRS recently announced in October that the exclusion amount for 2015 would be $5,430,000 or $5.43M. This represents a $90,000 increase from 2014, which had an exclusion of $5,340,000.

Year                   Amount Excluded        Maximum Tax Rate

2001                   $675,000                      55%

2002                   $1M                             50%

2003                   $1M                             49%

2004                   $1M                             48%

2005                   $1M                             47%

2006                   $2M                             46%

2007                   $2M                             45%

2008                   $2M                             45%

2009                   $3.5M                          45%

2010                   Repealed                      0%

2011                   $5M                             35%

2012                   $5.12M                        35%

2013                   $5.25M                        40%

2014                   $5.34M                        40%

2015                   $5.43M                        40% 

In most basic terms, the federal estate tax is a tax on estates whose value exceeds the exclusion amount. So if a person passed away in 2014 and was worth $1M, no federal estate tax would be due. Conversely, if the person was worth $10M, then a federal estate tax would generally be owed. 

The contents of this post only relate to the federal estate tax. Each state is free to institute or not institute an estate tax, just like income taxes. For example, New York has an estate tax whereas California does not.