Is the Estate Tax Going to Be Repealed?

The short-term answer is “yes.” The Economic Growth and Tax Relief Reconciliation Act of 2001 made sweeping changes to the federal estate tax and eliminated the tax entirely in 2010.

However, because the tax legislation is scheduled to expire after December 31, 2010, the federal estate tax will return to its original 50 percent maximum rate in 2011 unless Congress acts to make the repeal permanent.

Estate taxes are levied by the federal government and several states on any property that passes from the dead to the living. All estate assets are subject to federal estate taxes. However, the applicable credit shelters a portion of an estate from federal estate taxes.

The following table illustrates changes to the applicable credit and the top federal estate tax rate from 2002 through 2011.


Year
Applicable Credit
Top Estate Tax Rate
2002
$1 million
50%
2003
$1 million
49%
2004
$1.5 million
48%
2005
$1.5 million
47%
2006
$2 million
46%
2007
$2 million
45%
2008
$2 million
45%
2009
$3.5 million
45%
2010
Tax repealed
0%
2011
$1 million
50%

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.