Estate and Gift Taxes Changes Limited by “Fiscal Cliff” Deal

Estate and Gift Taxes Changes Limited by “Fiscal Cliff” Deal

The American Taxpayer Relief Act permanently sets the estate tax exemption at $5 million for (adjusted due to inflation) an individual and $10 million for a couple which is the same amount that has been exempted for the past two years.

However, Congress did change the maximum tax rate from 35% to 40%.  Depending on the value of the estate, tax rates of 37%, 39% and 40% will apply.

The gift tax and generation-skipping transfer tax exemptions will also remain at the same level as last year (adjusted for inflation).

Since most Americans do not have that large of an estate, this should have little impact on most.

Other highlights of the bill include: (1) the 2% cut in payroll tax would lapse, so employees could see smaller paychecks this month; (2) increase individual tax rate from 35% to 39.6% for individuals who earn more than $400,000 or couples who earn more than $450,000; (3) increase from 15% to 20% capital gains and dividend income tax rate for individuals whose income exceeds $400,000 and couples whose income exceeds $450,000; (4) indexing of the Alternative Minimum Tax for inflation to prevent many middle income taxpayers from being hit with higher tax bills; and (5) blocking for one year a 27% cut in Medicare payments to doctors. There were many other provisions in the bill covering a myriad of issues.

Congress will be addressing entitlement programs (such as Social Security, Medicare and Medicaid) later this year.

For more information on estate and gift tax, please contact our Dallas office at (214) 720-0102.

Skip to content