John Bullis: Estate and gift tax new rules

Congress has changed the tax rules on estates and gifts many times in the last 12 years. The newest law, the 2012 Tax Relief Act, permanently establishes the estate exemption at $5 million in 2010, with increases for inflation. (Is anything Congress does really permanent?)

For those dying in 2012, the amount that can be left without a death (estate) tax is $5.12 million. For those dying in 2013 the amount is increased to $5.25 million or so.

The death tax return, Form 706, is a little complicated. It requires listing all assets and liabilities and then allows a tax credit that is equal to the exemption amounts above.

The tax rates on amounts greater than the exemption amounts are 35 percent for 2012 and 40 percent for 2013 and later years.

The "portability" allowance also is made permanent. This is the unused portion of the exemption amount of the first to die for a married couple. If a Form 706 is filed and the election for portability is made, the unused portion is added to the surviving spouse's exemption.

For example, if Joe and Mary are married and Joe dies in 2012 or 2013 and Joe's Form 706 shows only $1 million of net assets, his unused exemption is transferred to Mary.

She then has the basic exemption plus the unused amount from Joe.

The Gifts tax rules also were changed to allow the value of gifts under the exemption amount to not be taxable for Gift Tax. The tax rates are the same as the death tax rates.

But, if someone did $1 million of taxable gifts (greater than the annual exclusions), that is basically subtracted from the death tax exemption for that person. Instead of the 2013 death tax exemption of say $5.25 million they could die in 2013 and have net assets of $4.25 million exempt from death tax.

The person receiving a gift must use the tax basis (cost) of the giver as the amount to figure the income tax if the item is sold. For example if Frank had stock that he had a cost basis in (purchase price plus reinvested dividends) of $200,000 and it was worth $300,000 when he gave it to someone, the old tax basis of $200,000 is transferred to the person receiving the gift.

On the other hand, if Frank died and left the same stock to Sue, the value at the time of the death is the tax basis for the recipient. If the value at his death was $300,000 Sue can then sell it and have up to $300,000 exempt from income tax.

Did you hear? "If you let others dictate how you feel, you are going to be pretty miserable," Danny Wuerffel, football player.

• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.


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