Estate Tax Reform - Issue Summary
|
|
| What is the fundamental issue? |
| In 2001, Congress enacted legislation to phase out the estate tax, with full repeal occurring in 2010. Because of unique procedures associated with passage of the 2001 legislation, however, the estate tax will be reinstated as of January 1, 2011 at its pre-2001 levels with a small exemption amount and very high rates. During 2010, so-called "carryover basis" rules will apply. Under carryover basis, the heirs would measure gain from any subsequent sale using the value (or basis) of the property in the hands of the decedent. Under current law (and under pre-2001 law), gain on sale by the heirs is measured based on the fair market value of the property at the date the deceased owner died. Finally, the repeal provision has the effect of eliminating the so-called "marital deduction." The marital deduction allows any estate tax to be deferred on any assets that the decedent spouse wills to his/her spouse. Carryover basis and the loss of the marital deduction are very punitive. |
|
| I'm a Realtor®. What does this mean to my business? |
| Carryover basis is incredibly complex and requires a great deal of recordkeeping by the original owners of the property. Uncertainty about the value of family assets in the hands of heirs will guarantee confusion and may also be subject to abuses. |
|
| NAR Policy: |
| NAR supports repeal of the estate tax but opposes the portion of the repeal that requires the use of so-called "carryover basis." If the estate tax were to be revised, NAR supports the lowest possible rate (but in no event a rate higher than the maximum individual tax rates) and a substantial exclusion. |
|
| Legislative/Regulatory Status/Outlook: |
| Because the estate tax is presently repealed for 2010 only, and because the 2011 rules would be very onerous, action to enact a permanent revision of the estate tax during 2009 is essential. Estate tax revision has been labeled the one "must-do" piece of tax legislation for 2009. Most believe that the revisions would resemble rules in effect for 2009: An estate tax exclusion of around $3 million, maximum rates of around 40%, stepped up basis (current law) and a full marital deduction. Timing for this effort has not yet been specified. Given the health care legislative logjam, it is not clear when Congress will act to extend current law or make it permanent. In 2009, the exclusion is $3.5 million with a maximum rate of 45%. |
 Link to Thomas
|
