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Each person is given a
credit that may be applied to the amount of federal
estate tax owed by that person at death, which is
referred to as the "unified credit" due to its relation
to both the federal estate tax and the federal gift tax.
The unified credit is a fixed dollar amount granted to
every person's estate that can be applied to the actual
amount of federal estate tax that is owed by that
estate.
However, rather than discussing the unified
credit, people often discuss the dollar amount of the taxable estate that
the unified credit allows to pass free of the federal estate tax. This
is known as the "applicable exclusion amount."
|
Year of Death |
Applicable
Exclusion Amount |
Unified Credit
Amount |
Top Tax Rate |
|
2007 |
$2,000,000 |
$780,800 |
45% |
|
2008 |
$2,000,000 |
$780,800 |
45% |
|
2009 |
$3,500,000 |
$1,455,800 |
45% |
|
2010 |
No estate tax |
|
2011 |
$1,000,000 |
$345,800 |
55% |
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The year of a person's death determines the
federal estate tax rate, along with the top tax rate and unified credit
amount.
As shown by the preceding table, a
unified credit amount of $780,800 is available to those
who die during 2008. The applicable exclusion
amount during that same year is $2,000,000.
In other words, a $2,000,000 taxable
estate will produce $780,800 of federal estate taxes,
which is equal to the amount of the unified credit
granted during 2008. This is comparable to saying
that the $780,800 unified credit excludes $2,000,000
from the Federal estate tax.
Under EGTRRA (The Economic Growth and Tax Relief
Reconciliation Act of 2001), the applicable exclusion
amount varies for different years as the federal estate
tax is phased out through 2010.
Basically, the dollar value of the
taxable estate that is less than or equal to the
applicable exclusion amount is free of tax and the
amount of the taxable estate that exceeds the applicable
exclusion amount is taxed at the top tax rate.
Use the
Federal
Estate Tax Calculator for a quick calculation of the
amount owing for any year between 2001 through 2011.
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