The Death Tax Series (Part 2 of 3)
We all worry about income tax, but there are other taxes that you need to consider when you’re dealing with an estate or a property that is switching hands either at death or during life. In part 1 we covered the gift tax. In part 2 we will cover the federal estate tax.
Part 2: The Federal Estate Tax
Understanding The Federal Estate Tax – Dealing with the loss of a loved one is never easy and the extra burden of now having to manage the estate, its finances and taxes can be quite overwhelming. The Federal Estate Tax is a tax on your right to transfer property at death. It is paid by the estate—not the heirs. The rate is a flat 40%. The good news is that unless the estate is worth over $5.45 million and you did not use any of your gift exemption during your lifetime, you don’t owe a cent to the government.
Additionally, for married couples, a surviving spouse may elect to pass any of the deceased spouse’s unused exemption to his or her estate. This is called portability and may be elected on a timely filed estate tax return. Therefore, even if you do not believe you will owe taxes on your loved one’s estate, it is still important to consult a CPA to ensure you understand and take advantage of portability.
Stay tuned next week when we will wrap up this 3 part series. In the meantime, feel free to contact us for a free consultation.