Estate Tax - Credits

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)

Sample Questions 1 - 5


Related Articles
  1. Financial Advisors

    How Life Insurance Can Help Reduce Estate Taxes

    Inheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
  2. Taxes

    An in Depth Look at How Inheritances Are Taxed

    The tax implications of an inheritance can be complex. Here's what beneficiaries need to know.
  3. Taxes

    Estate Taxes: Who's on the Hook?

    Inheritance taxes can be tricky. Most people have to deal with them at a very inconvenient time. It's better to learn the laws now so you're ready later.
  4. Taxes

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  5. Retirement

    How Much Will You Owe on Your Inheritance?

    Estate planning can be unpleasant, but in order to get the full benefit of what you've inherited, it’s important to be prepared for the related taxes.
  6. Taxes

    How To Get The Most Money Back On Your Tax Return

    Many people pay more taxes than they have to simply because they don’t know better. Here are a few suggestions for getting the most out of your tax return.
  7. Financial Advisors

    Estate Planning and Elderly and Passed Clients

    By keeping up with new estate tax rules, financial advisors can help elderly clients save big on tax costs.
  8. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  9. Your Clients

    How to Gift Your Way to Lower Estate Taxes

    Estate planning is not just for inheritance. High net-worth individuals, who plan properly, can gift their money and save on taxes.
  10. Taxes

    Tax Deductions Vs. Tax Credits

    Understanding the difference between tax deductions and credits is crucial, as the tax strategies that you adopt now can favor one over the other and yield substantially different tax savings.
RELATED TERMS
  1. Unified Tax Credit

    A tax credit that is afforded to every man, woman and child in ...
  2. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  3. American Opportunity Tax Credit

    A tax credit that enabled more student and parents to pay for ...
  4. Pick-Up Tax

    A tax imposed by state authorities based on the estate tax credit ...
  5. Decedent

    A person who is no longer living. Just as a taxpayer's possessions ...
  6. Form 706: United States Estate ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
RELATED FAQS
  1. How can I reduce the taxes on my inherited retirement assets?

    Many beneficiaries miss out on one of the most significant tax deductions for inherited retirement-plan assets; the income ... Read Answer >>
  2. What is the difference between a write-off and a deduction?

    Understand the differences between a tax write-off and a tax deduction. Learn how each one works to reduce income taxes and ... Read Answer >>
  3. What would the estate tax be on life insurance policy of $25,000.00?

    $25,000.00 was paid to the beneficiary of a life insurance policy. What would the estate tax be and do you have to pay an ... Read Answer >>
  4. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  5. How are life insurance proceeds taxed?

  6. What is the difference between bad credit and no credit?

    The answer to this question will depend on what information (if any) is found on your credit report, such as any bankruptcy ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center