Estate Tax

10 Myths and Realities about the Estate Tax

The estate tax is a tax on property (cash, real estate, stock, or other assets) transferred from deceased persons to their heirs. Only the wealthiest estates in the country pay the tax because it is levied only on the portion of an estate’s value that exceeds a specified exemption level, currently $5.25 million per person (effectively $10.5 million per married couple). The estate tax thus limits, to a modest degree, the large tax breaks that extremely wealthy households get on their wealth as it grows, which can otherwise go completely untaxed. Though the estate tax has been an important source of federal revenue for nearly a century, a number of myths continue to surround it.

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Background

Enacted in 1916, the estate tax is a tax on property (such as cash, real estate, stock, or other assets) that is transferred from deceased persons to their heirs.  It is best understood as a tax on inherited wealth because it applies only to large transfers of property. 

Legislation enacted in 2001 gradually phased out the estate tax by raising the exemption level and reducing the rate, leading to the tax’s temporary repeal in 2010. The tax was scheduled to return in 2011 under pre-2001 rules (an individual exemption of $1 million and a top rate of 55 percent), but policymakers have voted twice — most recently in the “fiscal cliff” deal early in 2013 — to continue it in much weaker form. 

By the Numbers

Estate Tax Has Fallen Considerably Since 2001
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