Estate Tax - Credits

Estate tax credits are amounts that are taken as direct deductions from the tentative tax calculation to determine the actual estate tax due. Credits are much more valuable than deductions from the gross or adjusted estate, since they offer a dollar-for-dollar tax reduction.

Gift Tax Payable
A credit is available for the federal gift tax paid by a decedent on taxable gifts made before 1977 if the property is included in the gross estate. This credit is subtracted directly from the tentative tax figure.

Applicable Credit Amount
Each year, taxpayers are given an applicable estate tax exclusion amount that is exempt from the federal estate tax. For tax year 2013 that amount is $5,250,000. This exclusion amount has an equivalent credit known as the "Unified Credit" which can be taken directly against the amount of the estate tax due. For 2013 the "unified credit" amount is $2,045,800.

As an example, in the year 2009, the federal estate tax exclusion amount was $3,500,000, and the applicable "unified credit" associated to this was $1,455,800 (this is the amount that is actually entered on the estate tax return Form 706 as the credit). Be careful not to get these two figure confused, they have very distinct differences.

Prior Transfer Credit
If the decedent inherited property from someone who died less than 10 years before the decedent's death or within two years following the decedent's death, the property could qualify for a credit. The transferred property must have been included in the taxable estate of the transferor-decedent to qualify for the credit.

Why? To avoid "Double Taxation" of property inherited within a short period of time, the estate tax previously paid on this property is given a credit that ranges between 20 to 100% depending on the period of time between the transfer.

(10 years before or two years after the decedent's death is short-term to qualify for the credit)

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