Estate Tax in 2025

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2025 as detailed below: 

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2010                   Repealed                      0%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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40%   

2019                   $11.4M                        40%  

2020                   $11.58M                      40% 

2021                   $11.7M                        40% 

2022                   $12.06M                      40% 

2023                   $12.92M                      40% 

2024                   $13.61M                      40%

2025                   $13.99M                      40%

Estate tax in 2024

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2024 as detailed below:

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40%   

2019                   $11.4M                        40%  

2020                   $11.58M                      40% 

2021                   $11.7M                        40% 

2022                   $12.06M                      40% 

2023                   $12.92M                      40% 

2024                   $13.61M                      40%

Estate Tax in 2023

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2023 as detailed below:

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40%   

2019                   $11.4M                        40%  

2020                   $11.58M                      40% 

2021                   $11.7M                        40% 

2022                   $12.06M                      40% 

2023                   $12.92M                      40%

Estate Tax in 2022

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2022 as detailed below:

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40% 

2019                   $11.4M                        40% 

2020                   $11.58M                      40% 

2021                   $11.7M                        40% 

2022                   $12.06M                      40%

Estate Tax in 2021

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2021 as detailed below:

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40% 

2019                   $11.4M                        40% 

2020                   $11.58M                      40% 

2021                   $11.7M                        40%

Estate Tax in 2020

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2020 as detailed below:

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40% 

2019                   $11.4M                        40% 

2020                   $11.58M                      40%

Estate Tax in 2019

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2019 as detailed below:

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40% 

2019                   $11.4M                        40%

Estate Tax in 2018

Due to the passage of the Tax Cuts and Jobs Act of 2017, the estate tax exemption amount for 2018 has been changed as reflected below.

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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.2M                        40%

Estate Tax in 2018

Below is an overview of the federal estate tax exclusion amount since 2001 and includes the recently announced exclusion amount for 2018:

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% 

2016                   $5.45M                        40%  

2017                   $5.49M                        40%         

2018                   $5.6M                          40%

The estate tax is pegged to inflation. One can see how the estate tax has incrementally increased since 2011.

What looms over all of this is pending legislation that affects the estate tax. The House of Representatives' tax bill would increase the exemption and eventually phase out the estate tax. The Senate's tax bill would increase the exemption but not phase it out. What the future holds for the estate tax will likely be decided in the next couple of weeks.

To be clear, the above represents the federal estate tax. A state is free to impose or not impose it owns estate tax regime. For example, the State of New York has a separate estate tax whereas the State of California does not.

Estate Tax in 2017

An annual occurrence for the IRS the past couple of falls has been to announce an increase in the estate tax threshold, or the applicable exclusion amount in tax parlance.  When the estate tax was re-instituted a couple of years ago, it became pegged to inflation. Thus, in periods of inflation, the estate tax would rise as well.

Recently this announcement was made by the IRS. Below is an overview of the federal estate tax exclusion amount since 2001 and includes the recently announced exclusion amount for 2017.

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% 

2016                   $5.45M                        40%  

2017                   $5.49M                        40%                

The applicable exclusion amount for 2017 represents a $40,000 increase from 2016.

Married couples who are U.S. citizens can take advantage of martial deduction trusts or portability to shield up to $10.98M from the estate tax.

The above limit for 2017 pertains to decedents who pass away in 2017. You cannot pick which year you want to apply to your estate. Sorry. Thus, if the decedent passed away at 11:59pm on December 31, 2016, the exclusion amount for 2016 would apply, not 2017. A decedent's death certificate will invariably list their date of death.

To be clear, the above represents the federal estate tax. A state is free to impose or not impose it owns estate tax regime. For example, the State of New York has a separate estate tax whereas the State of California does not.   

The Future of the Federal Estate Tax

Yesterday Democratic presidential candidate Hillary Clinton proposed two changes to the federal estate tax regime. Depending upon who you ask, the federal estate tax is also known as the inheritance tax or death tax.

First, she would increase the maximum tax rate to 65% (the current top rate is 45%).  This rate would be levied on the excess of estates that exceed a certain monetary threshold. In 2016 the amount is $5.45M. For instance, if an estate was worth $2M in 2016, no federal estate tax would be due, but an estate worth $20M in 2016 would incur federal estate tax liability.

Second, Ms. Clinton would eliminate the step-up basis rule that allows beneficiaries to receive inherited property with a new tax basis. For example, assume widow Lila purchases a home in San Jose, CA for $100,000 in 1990. She passes away intestate in 2016. Her sole heir is her only child, son Lucky. The value of the home is now $1M as determined by a probate referee. Lucky sells the home during probate for $1M in 2016. Since Lucky's basis is $1M, due to it being stepped-up, Lucky would not pay capital gains tax. Under Secretary Clinton's proposal, Lucky would not receive a stepped-up basis for the property. Previously President Obama suggested elimination of the same tax structure, which he phrased the "trust fund loophole." There has been no movement on this bill though.

Conversely Republican presidential candidate Donald Trump has proposed repealing the federal estate tax. That is, there would be no tax on a person's estate when they pass away, regardless of the size.    

Obviously each candidate views the federal estate tax markedly different.

What should be mentioned about either proposal is the necessity of an act of Congress for implementation. The Office of the President, the executive branch, can enforce laws but cannot pass laws. Whereas Congress, the legislative branch, can pass laws. So while Ms. Clinton or Mr. Trump can propose whatever law they want, ultimately both branches of Congress, the Senate and the House of Representatives, need to agree on a bill to amend the federal estate tax.

PLEASE READ:

This blog offers no opinion on the strengths and/or weaknesses of either proposal. This post is strictly for informational purposes. Please do not contact me with your political viewpoints on the matter or which candidate you will be voting for in the upcoming presidential election. I am not affiliated with either campaign or any presidential campaign for that matter. Thank you. 

Estate Tax in 2016

An annual occurrence for the IRS the past couple of falls has been to announce an increase in the estate tax threshold.  When the estate tax was re-instituted a couple of years ago, it became pegged to inflation. Thus, in periods of inflation, the estate tax would rise as well.

Recently this announcement was made by the IRS. Below is an overview of the federal estate tax exclusion amount since 2001 and includes the recently announced exclusion amount for 2016.

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% 

2016                   $5.45M                        40%  

The applicable exclusion amount for 2016 represents a $20,000 increase from 2015.

Married couples who are U.S. citizens can take advantage of martial deduction trusts or portability to shield up to $10.9M from the estate tax.

The above limit for 2016 pertains to decedents who pass away in 2016. You cannot pick which year you want to apply to your estate. Sorry. Thus, if the decedent passed away at 11:59pm on December 31, 2015, the exclusion amount for 2015 would apply, not 2016. A decedent's death certificate will invariably list their date of death.

To be clear, the above represents the federal estate tax. A state is free to impose or not impose it owns estate tax regime. For example, the State of New York has a separate estate tax whereas the State of California does not.    

You can read the IRS' announcement here. There are also other tax announcements in the notice.