The Basics of Estate Tax

Posted by admin on July 26, 2012

Whether real estate land is inherited or donated, a federal estate tax or gift tax is associated with the exchange. Several states also set an estate tax, requiring a federal and state estate tax to be paid, while other states offer an exemption from the federal tax and only require the state tax be paid.

Although repealed in 2010, estate taxes were re-imposed in 2011. The current Federal estate tax rate is at 35% of the real estate land’s value, or Gross Estate value, according to Title III of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Most states will be subjected to this tax rate, while other operate independently of federal law, making it possible for an estate to be subject to state tax while exempt from federal tax.

Residents of Arizona for example, are only required to pay the federally mandated tax for real estate land. Arizona permanently repealed its estate tax in 2006, making it easy for inheritors to determine what amount will be taxed from the real estate land’s total worth. Follow these steps to calculate your estate tax liability:

  • Gross Estate Value: The current fair market value of assets, such as real estate, insurance, trusts, cash and securities, business interests, annuities and more. In a case of probate property, the gross estate value is calculated at the time of death.
  • Deductibles: 5 deductibles exist which will reduce the estate tax on real estate land according to the IRS, which are:
  1. Administration expenses of the estate
  2. Losses during estate administration
  3. Current mortgages and outstanding debt
  4. Charitable Deduction: If the estate is given to a qualified charity, a deduction is applied.
  5. Marital Deduction: If a spouse passes away and estate ownership is transferred to the other spouse, a deduction is applied.
  • Exclusion Amount: Annually, the federal government defines a credit shelter amount which is exempt from being taxed. The 2012 credit shelter amount is $5.12 million.

With these values identified, combine the exclusion amount with deductibles then subtracting this amount from the gross estate value. This determines the taxable value of the estate, which is then multiplied by the current estate tax rate (35%) to determine how much money will be taxed. Call All Acres today at (855) 227-3741 or contact us online for more information regarding estate taxes or if you have recently inherited land and are looking to sell it quickly using our high visibility listings.