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Future of Federal Estate Tax?

Future of Federal Estate Tax?

Last week President Obama released his budget proposals for fiscal year 2017, which includes proposed changes for federal estate and gift taxes.  A summary prepared by Checkpoint RIA is available here: FY 2017 Budget Contains Estate and Gift Related Tax Provisions.  To further summarize:

  • Reduce the estate tax exclusion from $5.45 million per person (indexed for inflation) to $3.5 million per person, and increase the top rate from 40% to 45%.
  • Treat transfers of appreciated property as a sale of the property, so that the
    donor or deceased owner of an appreciated asset would realize a capital gain at the time the asset is given or bequeathed.  The first $100,000 of gain would be excluded.  Also excluded is the first $250,000 of gain on the decedent's (or donor's) residence.  The tax imposed on gains deemed realized at death would be deductible on the 706 estate tax return of the decedent's estate.  Gifts or bequests to a spouse or charity would not realize a capital gain and thus the assets would have a carryover (as opposed to "stepped up") tax basis.

How do the presidential candidates stack up?  Here are the candidates' proposals:

  • Democrats
    • Hillary Clinton - $3.5 million exclusion and 45% rate
    • Bernie Sanders - $3.5 million exclusion and rates between 45% and 65%
  • Republicans
    • Donald Trump - Eliminate estate tax
    • Ted Cruz - Eliminate estate tax
    • Marco Rubio - Eliminate estate tax
    • John Kasich - Unknown
    • Ben Carson - Eliminate estate tax

Although not able to locate John Kasich's plan for the federal estate tax, it is worth noting that the Ohio estate tax has been repealed during Kasich's governorship.  There is no Ohio estate tax on estates of individuals with a date of death of January 1, 2013 or after.  Prior to January 1, 2013, estates with a net taxable value of $338,333 or less were exempt, whereas a 6% rate applied to the taxable value between $338,333 and $500,000, and a 7% rate applied above $500,000.

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