Estate Tax Repeal Means New Filing

The good news is that the estate tax is gone this year.  But leave it to the IRS to come up with a rule that requires some sort of filing in any case!

            Recall that even though the tax is gone in 2010, new rules apply to how a beneficiary’s tax basis is determined with respect to inherited assets.  With a couple of exceptions, the new rules say that there’s no more unlimited “step up” to fair market value – the beneficiary takes on the decedent’s “carryover basis.”  The two exceptions are:

  1. The executor can allocate up to $1.3 million of fair market value step up to increase the basis of assets; and
  2. The executor can allocate up to $3 million of fair market value step up to assets passing to a surviving spouse.

Which brings us to the reporting requirement – on some sort of form which the IRS will

dream up later, the details of the basis information must be reported to the Revenooers, as well as to the estate beneficiaries.  The IRS is to get the info with the income tax return for the decedent’s last tax year (April 18, 2011 for a decedent dying in 2010).

            And while Congress continues to do nothing relative to the future of the estate tax (in 2011 and beyond), macabre news continues to emanate from various quarters regarding how folks might be viewing the pros and cons of dying this year versus next year.  Consider the  comments of U.S. Representative Cynthia Lummis, who recently noted that some of her Wyoming constituents are so worried about the possible reinstatement of the estate tax next year that they plan to discontinue dialysis and other life-extending medical treatments so they can die before December 31 of this year!

            “If you have spent your whole life building a ranch, and you wanted to pass your estate on to your children, and you were 88 years old and on dialysis, and the only thing that was keeping you alive was that dialysis, you might make that same decision,” Lummis recently told reporters.

            And those of you continuing to put up with the California budget shenanigans should know that one of the so-called budget balancing measures which they recently came up with will take away California taxpayers’ ability to utilize their net operating loss carryforwards.

            Yep, NOLs will be suspended again for the 2010 and 2011 tax years – applicable to individual and corporate taxpayers with income levels in excess of $300,000.  Put that in your pipe and smoke it, along with another little notification from the Golden State that refunds on individual and corporate tax returns that were not processed by October 7, 2010 will be delayed until there is sufficient cash in the state treasury to pay those refunds!

            And can IOUs be far behind?

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

            Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He is also a contributor to the recently published 13th edition of Tax Savvy for Small Business, published by Nolo.  He can be reached at 831-7288, and welcomes comments below.

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