Another Tax Law Patch May Provide Permanent Estate Tax Laws

I have often lamented that the lack of permanency of tax laws is doing a huge disservice to the American population. We all have to pay our "fair share" of taxes. However, we don't need to pay more. These constant temporary tax laws make it near impossible to determine what "fair" is. Part of the concept of equity and paying taxes is that the taxpayer should have an opportunity to know what the rules are in advance so that they can plan accordingly to pay what ever that minimum fair share is.

Permanent estate and gift tax laws may be  on the way. On July 17, Senate Majority Leader Harry Reid introduced the “Middle Class Tax Cut Act,”.  Title II addresses estate tax relief.  It proposes for 2013 and moving forward:

  • Permanent estate tax exemption amount of $3.5 million
  • Maximum estate tax rate of 45%
  • Maximum lifetime gift exemption of $1 million (this is the current law, which is not modified by this bill)
  • Elimination of "clawback" issue if you make a gift under an exemption amount that is higher than the amount at the time of your death (ie.  you  made a gift using your $5 million gift tax  exemption amount, but the estate tax exemption amount at your death is only $3.5 million.)  For more on the clawback issue, look at Make Large Gifts Now, Pay More Tax Later?

The proposed Middle Class Tax Cut Act also reflects the Obama' Administration's plan to extend through 2013 the "Bush Tax Cuts" (ie: the 2001 (EGTRRA) and 2003 (JGTRRA) tax cuts) for taxpayers other than “higher income”  taxpayers (generally, those making over $250,000 for marrieds, and over $200,000 for single ). Also proposed in the legislation:

  • Extend through 2013 some 2010 Tax Relief Act changes (e.g., expanded American Opportunity Tax Credit, child tax credit).
  • Allow up to $250,000 to be expensed under Code Sec. 179, for tax years beginning in 2013.
  •  Provide another one-year (i.e., through 2012) alternative minimum tax (AMT) “patch” (increasing AMT exemption amounts, and generally allowing nonrefundable personal credits to be used to offset AMT).