Federal estate tax calculation

The taxable value of your estate will determine the amount of money your heirs will have to pay to the government.

What is the taxable value of your estate?
What is the federal estate tax personal exemption allowance?
What are the federal tax rates?
How do you calculate the federal estate tax due?

Q. What is the taxable value of your estate?
A. Your estate representative must make a list of property you own and, perhaps with the help of an appraiser, assign a fair market value to the property.  The fair market value is the amount the property is worth at the time you die (or six months later if the value is lower than at date of death), not the price you paid for it. Then, he or she must make a list of all the debts you owed at your death.

If you own property jointly with someone else, multiply your ownership share times the fair market value to calculate the estate tax value of the property.  The taxable value of your estate is calculated by deducting the total amount of your debts from the total fair market value of all your assets.

If the taxable value of your property exceeds the personal estate tax exemption allowance, your executor must file a Form 706 Federal Estate tax return and pay the appropriate tax due within nine months of your death.

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Q. What is the personal estate tax exemption allowance?
A. The personal estate tax exemption allowance is the amount of money you can leave free of estate tax.

Q. How do you determine the amount of your personal federal estate tax exemption?
A. It depends on what year you die. The personal estate tax exemption amounts by year of death are shown on the following chart:

Year Personal Tax Exemption Tax-Free Amount
2006 $2,000,000
2007 $2,000,000
2008 $2,000,000
2009 $3,500,000
2010 No Tax
2011 and years thereafter $1,000,000 (reverts to old tax regulations)

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Federal estate taxes

Q. How do you determine your federal estate tax rates?
A. The estate tax is a progressive tax levied on the value of the taxable estate exceeding the allowable personal tax exemption allowance, as follows:

TAXABLE ESTATE ESTATE TAX RATE TEMPORARY RATE
Up to $10,000 18% of excess over $10,000
$10,000 to $20,000 $1,800 plus 20% over $10,000
$20,000 to $40,000 $3,800 plus 22% over $20,000
$40,000 to $60,000 $8,200 plus 24% over $40,000
#60,000 to $80,000 $13,000 plus 26% over $26,000
$80,000 to $100,000 $18,200 plus 28% over $80,000
$100,000 to $150,000 $23,800 plus 30% over $100,000
$150,000 to $250,000 $38,800 plus 32% over $150,000
$250,000 to $500,000 $70,800 plus 34% over $250,000
$500,000 to $750,000 $155,800 plus 37% over $500,000
$750,000 to $1,000,000 $248,300 plus 39% ovr $750,000
$1,000,000 to $1,250,000 $345,800 plus 41% over $1,000,000
$1,250,000 to $1,500,000 $448,300 plus 43% over $1,250,000
$1,500,000 to $2,000,000 $780,000 plus 49% over $2,000,000 45%
$2,500,000 to $3,000,000 $1,025,800 plus 53% over $2,500,000 45%
$3,000,000 $1,290,800 plus 55% over $3,000,000 45%


*Even though the table above lists the published tax rates, Congress changed the highest estate tax rates for U.S. citizens in 2001 to 45%.  For example, assume the value of the estate subject to estate taxes is $2 million for someone who died in 2008.  The amount of taxes due is $780,800 plus 45% of the value over $2 million, rather than the 49% shown in some published estate tax rate tables.

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Federal estate tax calculations

Q. How do you calculate the amount of federal estate tax due?
A. The estate tax due is determined by applying the applicable tax rate the year of death to the value of the estate in excess of the personal estate tax exemption allowance applicable the year of death. The death tax rate is currently higher than individual income tax rates. The tax rate changes by year. The amount of the personal federal tax exemption allowance also changes by year.

Step 1. Calculate the taxable value of your estate. Let’s assume the taxable value of the estate was $2,225,000.

Step 2. Deduct the Personal Estate Tax Exemption Allowance. Let’s assume the decedent died in 2008 when the personal tax exemption allowance amount was $2 million, leaving a net taxable estate of $225,000.

Step 3. Determine the appropriate tax rate and calculate the estate tax due.  Since the value of the taxable estate is between $250,000 and $250,000, the federal tax due is $38,000 plus 32% of any amount over $150,000.  The total federal tax due is $68,200.
A probate case cannot be closed until evidence is presented to the court that any estate taxes owed by your estate have been paid.  Some banks will not release accounts to the beneficiary until estate taxes are paid.

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