Wednesday, January 30, 2013

New Estate and Gift Tax Provisions for 2013

As a result of the American Taxpayer Relief Act of 2012 passed by Congress and signed into law by President Obama on January 2, 2013, the estate tax exemption for the year 2013 remains at $5 million. Adjusted for inflation, the precise amount for the unified lifetime estate and gift tax exemption for the year 2013 is $5.25 million. There are additional changes made to the estate and gift tax laws as a result of the passage of this Act.

The estate and gift tax rate for amounts above the unified lifetime tax exemption is now 40%, increased from 35%. The gift tax annual exclusion is now $14,000.00 per donee per year, from $13,000.00. The estate tax exemption portability available to spouses continues to be an an available option. The surviving spouse may elect to use any unused portion of the unified lifetime tax exemption that was available to the predeceased spouse. This allows married couples to effectively shield up to $10 million in assets from estate and gift tax.

In previous years, legislation passed to extend the unified lifetime tax exemption was only temporary patchwork to extend the exemptions for an extra year. If no further legislation was passed to extend the exemptions upon expiration, the unified lifetime gift and estate tax exemptions would automatically revert to $1 million. This was one of many issues that led to the annual "fiscal cliff". One of the most notable features of this Act of 2012 is that the $5 million exemption and the 40% tax rate is now permanent until Congress acts otherwise.

In addition to changes made to estate, gift, and generation-skipping tax provisions, the Act of 2012 also addresses income tax provisions, including federal income tax rates, capital gains and dividend tax rates, and alternative minimum tax rates.

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