EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over of Amount Ove
ID: 2534090 • Letter: E
Question
EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over of Amount Over Tentative Not Over Tax Plus 0 10.000|$ 0 |18% |$ 20,000 40,000 0 10,000 20,000 40,000 1,80020 3,800 22 8.200 24 13,000 26 18,200 28 23.800 30 38,800 32 70,800 34 155,800 37 248,30039 345,800 40 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 60.000 60.000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 The applicable credit and exemption is zero for taxpayers who opt out of the estate tax in 2010Explanation / Answer
Answer
The solution begins with the estimation of Jack’s cumulative taxable transfers as follows:
Gross estate $5,400,000
Add:Prior taxable transfers (2008) $1,000,000
Add:Prior taxable transfers (($1,750,000 - $13,000) x 3) $5,211,000
Cumulative taxable transfers $11,611,000
Next, it is necessary to calculate the amount of credit for prior taxable transfers. The 2008 transfer was offset by Jack’s unified credit ($1 million exemption equivalent) but none of the taxable transfer in 2009 was offset by the exemption equivalent because Jack used theexemption equivalent in 2008. Hence, Jack made a $5.211 million taxable transfer in 2009. The credit for prior taxable transfers is calculated using the current rate schedule as follows:
Tax on taxable transfers ($6.211 million) $2,430,200
less unified credit ($1 million) (345,800)
Credit for current tax on prior taxable gifts $2,084,400
The calculation of the estate tax proceeds as follows:
Tax on cumulative taxable transfers of $11,611,000 $ 4,590,200
less credit for current tax on prior taxable gifts - 2,084,400
Tax on taxable estate $ 2,505,800
less Unified credit ($5.43 million) - 2,117,800
Estate tax due $ 388,000
Jack’s estate would be in the top marginal tax rate but that only a portion of the gross estate of $5.4 million would be subject to transfer tax because Jack could use the remaining $4.43 million of exemption equivalent to offset the tax (he only used $1 million of exemption equivalent in 2008 and none in 2009). Hence, only $970,000 of the estate is subject to tax ($5.4 million - $4.43 million). At the highest tax rate, this generates $388,000 of tax ($970,000 times 40%).
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