Posted on August 30, 2011

Bert Torres, a Palo Alto CPA, recently asked about the estate tax results for people who died in 2010. If the decedent’s estate is less then $3,000,000, does an estate tax return or the 8939 (Carry-Over Basis Form) need to be filed?

Answer: When Congress changed the law on December 17, 2010, they modified the default rules that apply for decedents who died in 2010.

First, the traditional rules applying to estates prior to 2010 are the rules that will apply in 2010 itself. However, the estate tax exemption is $5,000,000 for 2010. This means that all assets in the decedents estate (with the exception of IRD) qualify for a Step-Up in Basis. No estate tax return needs to be filed for estates less than $5,000,000.

If the estate is greater than $5,000,000, you will need to file the estate tax return, pay tax on the taxable estate at the rate of 35%, and get your step-up in basis.

Second, Decedent’s estates may “Opt Out” of the traditional rules on Form 8939. Instead of paying estate tax, you may have an unlimited estate tax exemption. However, you only get a limited amount of basis to allocate among the assets.

All estates may increase basis a maximum of $1,300,000. An additional $3,000,000 in basis may be increased for property that is passing to the spouse.

The deadline is fast approaching to make decisions regarding 2010 estates. Call the Sheffield Law Office if you have any questions or we can help in any way. Our number is (408) 920–2500.