The American Taxpayer Relief Act of 2012 (HR 8) was overwhelmingly passed by the U.S. Senate on January 1, 2013, and similarly approved by the House the same day. This much- anticipated agreement reached by Congress included not only income tax relief for many taxpayers, it also extended a historically generous gift and estate tax environment.
The Act provides a unified credit against gift and estate taxes that allows the first $5 million of gifts to be exempt from tax. A “unified” credit means that the total applies to all gifts, those made during life, and upon death. The credit will be adjusted annually for inflation, and applies to each individual, so a married couple can shield gifts up to $10 million from transfer tax.
The Act also provides for a permanent, maximum federal estate tax rate of 40%, up from the historically low rate of 35% that applied under the 2010 Tax Relief Act.
The federal estate tax was almost a deal-breaker in the Senate, and threatened to topple the country over the fiscal cliff. Republicans wanted complete repeal of the estate tax, while the President argued for a $3.5 million exemption, and a 45% tax rate.
This article originally appeared in the February 2013 issue of the Santa Paula Chamber of Commerce Express News.