The One-Year Estate Tax-Break

For 2010, and only 2010, the federal estate tax is eliminated for individual estates. This change means that the old “stepped up basis” rules for property transferred to you via an estate is no longer used. Instead, you will need to determine the gain on each individual asset transferred. Uto to $1.3 million of these “carryover” gains can be exempt from tax (add $3 million for gains inherited from a spouse).

In addition, the tax rate on gifts above a $1 million lifetime exemption is dropping from 45% in 2009 to 35% in 2010. Recall, any gifts below the lifetime limit to any one person would not be subject to this tax.

In 2011, the one-year federal estate tax elimination expires and the federal estate tax laws revert back to old tax laws in place in 2001 unless Congress acts to modify the rules.