IRS Provides Further Guidance for 2010 Deaths

Posted in on March 14, 2014

Nearly twelve months has passed since the end of 2010 and the IRS is still providing guidance for how to treat estates for individuals who died in 2010. In 2010 estates have the option of electing to be subject to the estate tax, or electing out of the estate tax. Why would someone voluntaryily subject an estate to the estate tax? By subjecting an estate to the estate tax the property of the estate receives a new basis as of the decedent’s date of death equal to fair market value. With property that has a built in gain, this can avoid capital gains taxes if the property is sold thereafter by the heirs of the estate. Therefore, for most estates valued at $5 million or less (the most property that can pass estate tax free in 2010), electing to be subject to the estate tax makes sense. However, for those estates in excess of $5 Million, they may want to elect out of the estate tax. The IRS has provided Form 8939 for making such election. This election must be made by January 17, 2012 in order for an estate not to be subject to the estate tax in 2010.