When Does An Estate Become Subject to the Federal Estate Tax?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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An estate becomes a taxable entity (just like a business or an individual) with the death of an individual and continues to exist until all the assets are disbursed to its heirs. Your personal representative will file tax returns for the estate (Form 706) to show estate assets and an estate income tax return (Form 1041) to report any income generated by the estate.

Before the tax is calculated, your gross estate of money, real property and other assets you had an interest in at the time of death, less the charitable and marital deductions, estate administration expenses, and other allowable deductions are tallied by the IRS to figure your taxable (net) estate. Various credits are subtracted to determine the estate tax due.

The federal tax is payable if the taxable estate exceeds the decedent’s exemption. With the passage of the 2017 Tax Cuts and Jobs Act the basic exemption amount was increased from $5,000,000 to $10,000,000, before the annual cost of living adjustments were taken into account. For a 2019 date of death, the inflation-adjusted exclusion figure is $11.4 million for an individual (a married couple can shield $22.8 million).  (However, under the 2017 law, those exemption amounts in 2026 will revert to the 2017 figures: $5.49 million per person, or if married, $11.2 million.)

What assets are included in your gross estate and how much each item is worth is closely scrutinized by the IRS and often is the source of irritating squabbles between the estate and the IRS.

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