New Tax Legislation

President Obama has signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) (H.R 4853). The new law gives taxpayers some certainty regarding the following tax issues: individual income tax rates; capital gains and dividend tax rates; income tax credits, such as the child tax credit, earned income tax credit, adoption credit, dependent care credit, and similar credits; alternative minimum tax; business incentives, such as 100 percent bonus depreciation and Code Section 179 deduction; energy incentives; and estate tax.

Specifically, the 2010 Tax Relief Act clarified the issues surrounding the estate tax. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the federal estate tax was abolished on January 1, 2010.  During 2010, many tax experts predicted that Congress would revive the estate tax because of the estimated $14 billion in lost tax revenue. The 2010 Tax Relief Act revives the estate tax for decedents dying after December 31, 2009; the maximum estate tax rate is 35 percent with an exclusion amount of $5 million.  In addition, the 2010 Tax Relief Act gives estates of decedents dying after December 31, 2009 and before January 1, 2011 the option to elect not to come under the revived estate tax.  Therefore, if a descendent passed away during 2010, the estate of the descendent may elect to apply (1) the estate tax based on the new 35 percent top rate and $5 million exemption, with stepped-up basis rules applying or (2) no estate tax, with carryover basis rules applying.

The 2010 Tax Relief Act also provides for “portability,” which provides surviving spouses with the option to take advantage of any unused portion of a predeceased spouse’s estate tax exclusion.  In order to take advantage of the unused portion of a deceased spouse’s exclusion, a surviving spouse must make an election on a timely filed estate tax return.

Feel free to call my office with any questions.