The good news is the estate tax is repealed! The bad news is, not for long. Since Bush’s 2001 tax cuts went into effect the exemption from estate taxes climbed year by year from $1 million to a high of $3.5 million in 2009. This year, 2010, is the repeal year but President Bush could never garner the 60 votes he needed in the Senate to make the repeal permanent. The consequence is the so-called “sunset” rule. As of January 1, 2011 the law automatically goes back to the way it was in 2001. In the case of the estate tax that means only a $1 million exemption and a top 55% tax rate.
The Obama Administration advocates extending the 2009 exemption of $3.5 million permanently. This appeared to be where the Senate was headed on May 18th when an agreement was reached that had the support of more than 60 Senators. But the deal fell apart when the Democratic leadership decided that it will not allow the legislation to come to the floor for a vote unless the legislation has the support of more than half of the Democrats’ 59 votes. Since the Democrats lack 50% support within their party the legislation failed. Regardless of whether the Senate acts, there will be an estate tax next year. Full repeal is not under consideration. The only question is whether the exemption will be $3.5 million or $1 million –and $ 2.5 million is a huge difference in the plans for millions of families including many many of our clients.
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