Definition
Estate Tax Payable is the amount determined after applying certain allowable deductions to the tentative estate tax. These deductions include:
- Unified Credit: A tax credit that can be subtracted from an individual’s lifetime gift and estate tax liability.
- State Death Taxes: Taxes imposed by states upon one’s death, which can be deducted from the federal estate tax.
- Gift Taxes Paid on Gifts Made Before 1977: Payments made on taxable gifts prior to the Tax Reform Act of 1976.
- Foreign Death Taxes: Death taxes imposed by a foreign country, which may be credited if the same property is subject to U.S. estate taxes.
- Estate Taxes on Prior Transfers: Taxes on transfers from another individual’s estate to the current decedent’s estate before applying the unified credit.
Examples
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Example 1: Computing Estate Tax Payable for a Decedent
- Suppose a decedent has a tentative estate tax of $5,000,000. The following deductions apply:
- Unified Credit: $4,625,800
- State Death Taxes: $100,000
- Total Deductions: $4,725,800
- Estate Tax Payable = Tentative Estate Tax - Total Deductions = $5,000,000 - $4,725,800 = $274,200.
- Suppose a decedent has a tentative estate tax of $5,000,000. The following deductions apply:
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Example 2: Estate with Foreign Death Taxes
- A decedent’s estate has a tentative estate tax of $3,000,000. Apply the following deductions:
- Unified Credit: $2,500,000
- Foreign Death Taxes: $200,000
- Total Deductions: $2,700,000
- Estate Tax Payable = Tentative Estate Tax - Total Deductions = $3,000,000 - $2,700,000 = $300,000.
- A decedent’s estate has a tentative estate tax of $3,000,000. Apply the following deductions:
Frequently Asked Questions (FAQs)
What is the unified credit?
The unified credit is a tax credit that can be subtracted from the estate and gift tax liabilities, allowing an exemption amount to transfer tax-free during the lifetime or at death.
Can I deduct state death taxes from the federal estate tax?
Yes, state death taxes can be deducted from the federal estate tax to reduce the estate’s total tax burden.
Do all gifts qualify for a deduction if they were made before 1977?
Only the gift taxes paid on gifts made before 1977 are deductible from the tentative estate tax.
Are foreign death taxes applicable for deductions more than once?
Foreign death taxes can be deducted if the property is subject to both U.S. and foreign death taxes, allowing for credit to avoid double taxation.
How do Estate Taxes on Prior Transfers work?
These deductions apply when the property was transferred from another decedent to the current decedent and was subject to estate tax before the current application of the unified credit.
Related Terms
Tentative Estate Tax
Tentative estate tax is the initial computation of the estate tax before applying any credits or deductions. It provides a baseline tax rate on the total taxable estate.
Unified Credit
The unified credit provides an exemption threshold for estate and gift taxes, allowing transfers up to a specific value free from taxes.
State Death Taxes
State death taxes are imposed by individual states upon death, varying across different states and subject to state laws.
Foreign Death Taxes
Foreign death taxes are taxes levied by foreign jurisdictions on the death of a person, applicable specifically to properties within those countries.
Estate Taxes on Prior Transfers
These are taxes applied on property that was previously taxed in another estate before being transferred to the current decedent’s estate.
Online References
Suggested Books for Further Studies
- Estate Planning Basics by Denis Clifford
- Estate Tax Planning: Problems and Solutions by John K. McNulty and Grayson M.P. McCouch
- Wills, Trusts, and Estates by Jesse Dukeminier, Robert H. Sitkoff, and James Lindgren
Fundamentals of Estate Tax Payable: Taxation Basics Quiz
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