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exempts from taxation the portion of the estate that falls below the filing threshold.
(The filing threshold is lower, however, if gifts have already been made). Table Al
in the appendix reports the current filing requirement and the unified credit
equivalent for 2003 through 2010.
Gross Estate Value. The gross estate value, which was $217 billion for
returns filed in 2000, is the total value of all property and assets owned by decedents.
Table A2 in the appendix provides the gross estate value for the returns filed in 2000
by wealth category. The data represent the returns filed in 2000, not the decedents
in that year. Thus, a portion of the returns filed in 2000 are from estates valued in
years before 2000.
Allowable Deductions. Deductions from the estate reduce the taxable
portion of the gross estate and in turn the number of taxable returns. In 2000, $95.0
billion was deducted from estates. The most valuable deduction is for bequests to a
surviving spouse, $65.5 billion; the most prevalent (though smallest reported)
deduction is for funeral expenses, $694 million. Appendix table A3 lists the
deductions in greater detail for returns filed in 2000.
Taxable Estate. After subtracting allowable deductions, the remainder of the
estate is the taxable estate. Taxable estate value was $122.8 billion in 2000.
Adjusted taxable gifts are then added to the taxable estate to arrive upon the adjusted
taxable estate. An individual is allowed to exclude $11,000 in gifts per year per
donee from taxable gifts. Thus, only the amount exceeding the $11,000 limit is
added back to the taxable estate. Only 12,527 returns filed in 2000 included taxable
gifts, adding approximately $6.2 billion to the taxable estate value. Thus, adjusted
taxable estates were worth $129.0 billion in 2000. Generally, the adjusted taxable
estate represents the base of estate tax.
Rates and Brackets. After establishing the value of the taxable estate, the
executor calculates the tentative estate tax due.3 The tax due is tentative because the
executor has not redeemed either the unified credit amount or the federal credit for
state death taxes paid (see Table A4 in the appendix).
A Numerical Example. The remaining steps in calculating the estate and gift
tax are most easily exhibited through numerical example. To accomplish this, we
first assume a decedent has an estate worth $2.5 million and leaves $1 million to his
wife and contributes $300,000 to a charitable organization. We also assume the
decedent has not made any taxable gifts leaving $1.2 million in his estate after
deductions. This simple example is exhibited below.
Numerical Example
Gross Estate Value $2,500,000
Less: hypothetical marital deduction $1,000,000
Less: hypothetical charitable contribution deduction $300,000
Taxable Estate $1,200,0003 26 I.R.C. 2001(c)
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Gravelle, Jane G. & Maguire, Steven. Estate and Gift Taxes: Economic Issues, report, January 31, 2003; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc824611/m1/6/: accessed July 18, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.