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2008 CCH Comprehensive Topics IM Ch22

2008 CCH Comprehensive Topics IM Ch22 - 409 Chapter 22...

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409 Chapter 22 Federal Estate Tax, Federal Gift Tax, and Generation-Skipping Transfer Tax ————————————————————— SUMMARY OF CHAPTER Chapter 22 is a survey of the unified tax system of wealth transfers by individuals. The basic legal terminology covered first is followed by a discussion of the gift tax, generation-skipping tax, valuation concepts, and some family tax planning. Computation and Payment of Estate Tax ¶22,001 Estate Tax Computation—Summary The 10 steps in the estate tax formula summarize the scheme of computation of the estate tax. Of special importance are the add-back of adjusted taxable gifts in Step 5 and the subtraction of gift taxes paid and the application of the applicable credit amount in Steps 8 and 9. ¶22,009 Applicable Credit Amount The Taxpayer Relief Act of 1997 renamed the ‘‘unified credit'' to the ‘‘applicable credit amount.'' The applicable credit amount is a flat $780,800 in 2007. This equates to an ‘‘applicable exclusion amount'' of $2,000,000 in 2007. The applicable credit amount is never ‘‘used up'' during life, other than to see if any gift tax is currently payable. Since adjusted taxable gifts are added to the estate tax base, the same applicable credit amount is still available to the estate. ¶22,015 Unified Rate Schedule Due to the applicable credit amount, the first dollar actually subject to estate tax is taxed at 41 percent. The maximum marginal tax bracket is 45 percent in 2007. ¶22,025 Payment of Tax and Returns Estate tax returns are due nine months after death, so there is no tax season. Filing is required once the gross estate exceeds $2,000,000 in 2007, even if no tax is due. Extensions of payment may be granted in hardship cases. There are special tax benefits for farms and closely held businesses. ¶22,035 Credits Against Tax First, the applicable credit amount and the gift tax credit are subtracted from the tentative estate tax. Only if there is still a tax payable is there a need to look for other credits. The most important one is the state death tax credit (for 2004 but a deduction after 2004 and before 2010), then the credit for the death taxes on prior transfers, and finally the foreign tax credit. Most states levy a ‘‘pick up'' tax, i.e., they © 2007 CCH. All Rights Reserved. Chapter 22
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410 CCH Federal Taxation—Comprehensive Topics charge whatever the maximum state tax credit is. There are two limitations on the Section 2013 credit for death taxes on prior transfers. Valuation takes place on the date of death of the transferor, not the decedent. Gross Estate ¶22,101 Property Includible in Gross Estate The gross estate includes the value of all property to the extent of the interest therein of the decedent at the time of death. The gross estate may be far in excess of the probate estate since it includes jointly held property and insurance payable to a named beneficiary. Note that nonresident aliens as well as citizens are subject to the U.S. estate tax on U.S. property.
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2008 CCH Comprehensive Topics IM Ch22 - 409 Chapter 22...

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