Discussion:Death Taxes and such.

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Discussion Forum Index --> Tax Questions --> Death Taxes and such.


Tstolley (talk|edits) said:

27 April 2006
I'm confused about Death taxes and income taxes paid by estates.

Given a simple situation. Ignoring State laws. Just Federal laws here. A parent ownes property with a FMV $5,000,000. Their basis in the property is $1,000,000. That person dies and passes the property on to their child. What taxes apply here. Does the estate pay any capital gain taxes on the unrealized $4,000,000 gain. Does this effect the Death Taxes? How does this all work.

Warren (talk|edits) said:

27 April 2006
The estate tax exemption in 2006 is $2,000,000. The value of the estate above the $2,000,000 is subject to estate tax at roughly 45-47%. So estate tax might be around $1,350,000 in your example ($3 million times 45%). The child inherits the property with a tax basis of $5,000,000 so income tax is not an issue. The estate tax gets much more complicated than I just described but that is the condensed version. Prior taxable gifts by the parent can have a significant impact, funeral and administrative expenses are deductible as are mortgages and debts of the estate. Estate tax gets very involved and there are several elections on the Form 706 that can have a substantial impact as well.

Dennis (talk|edits) said:

27 April 2006
Estate Taxes are transfer taxes. The term "Death Tax" is mere spin. Under current law, the tax comes out roughly $1.5 mil and child inherits basis at $5 mil.

Tstolley (talk|edits) said:

27 April 2006
So there are no capital gains taxes right? Just the estate tax and the childs basis is the FMV at death or 6 mos after if the election is filed... For some reason I was thinking that the gain was recognized. Thanks!

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