Currently there is a 45% tax levied on estates worth more than $3.5 million, or $7 million for couples. However, this tax is set to expire completely beginning on January 1st, 2009. Since Congress did not pass any extension, beginning in the New Year no estates will be subject to the tax.
Few weeks ago the House of Representatives passed a bill that aimed to extend the current 45% tax. The Senate then attempted to vote on a similar bill last Wednesday that aimed to extend the tax for two months giving them enough time to hopefully develop a long-term solution but between strong Republican opposition and a Congress focused on health care reform the effort was unsuccessful. Many experts call the issue a failure on behalf of the Obama administration and Democratic leaders for failing to address the problem before, and by neglecting to work with Republican leaders to develop an amicable solution.
Although the estate tax will expire at the end of this year, starting on January 1, 2011 it will return even more aggressive than before. Unless legislation is passed before 2011, the estate tax would resume with a 55% rate on all estates valued at more than $1 million. If enacted, this rate increase would revert the estate tax back to levels seen in the early 1990s.
With the estate tax gone in 2010, another tax will likely begin affecting those who inherit $1.3 million or more in assets next year. Typically, these estates would be subject to little or not capital gain taxes, but without an estate tax the opposite would be true.
Unfortunately, it is probably too late in the year for the Senate to take any further action on the estate tax. However, Democratic leaders have made the issue a top priority, and promise to work on a solution in the beginning of 2010. There is even talk that they may attempt to make the tax retroactive, meaning anyone who inherits a large sum of property or assets could be vulnerable to the estate tax.