House Ways and Means Committee Chairman Bill Thomas (R-CA) has introduced legislation that would permanently extend lower taxes on estates. As S-CORP members may know, estate tax relief has been a top priority of the small business community and has particular importance for family-owned businesses.
The Thomas bill is intended to restart the debate on the so-called “death tax” after the Senate failed on a procedural vote to take up legislation (H.R. 8 ) to permanently repeal the estate tax. Senate Majority Leader Bill Frist (R-TN) has declared his intention to send the President a permanent estate tax relief bill before the end of the month.
Under the Economic Growth Act of 2001, the estate tax is currently ramping down towards full repeal in 2010. However, due to special Senate Rules governing the Budget Act, the estate tax will snap back to its original form — including the 55 percent top rate and lower $1 million exemption — in 2001. Below is a summary of Chairman Thomas’ estate tax legislation. S-CORP members may be particularly interested in the provision allowing married couples to take full advantage of the $5 million exemption by carrying over any unused exemption to the surviving spouse.
Committee on Ways and Means
H.R. 5638, the Permanent Estate Tax Relief Act of 2006
Bill Summary
Permanent Estate and Gift Tax Relief
The estate tax relief provided in the Economic Growth and Tax Relief Reconciliation Act of 2001 will end in 2010. Unless Congress acts, in 2011 the estate tax exemption will drop to $1 million per person and the maximum estate tax rate will increase to 55 percent. The Permanent Estate Tax Relief Act of 2006 would provide permanent estate and gift tax relief.
Unified Estate, Gift and Generation-Skipping Transfer Tax
The Permanent Estate Tax Relief Act of 2006 would reunify the estate, gift and generation-skipping transfer taxes, giving individuals greater flexibility to make estate planning decisions during life. A non-unified estate and gift tax provides less favorable tax treatment for gifts made during lifetime than gifts made (through a will) at death.
Increased Estate and Gift Tax Exemption
The Permanent Estate Tax Relief Act of 2006 would increase the exemption amount to $5 million per person effective January 1, 2010.
Lower Estate and Gift Tax Rates
The Permanent Estate Tax Relief Act of 2006 would reduce the rate of tax on estates up to $25 million to the capital gains tax rate (currently 15 percent, set to increase to 20 percent in 2011 unless extended).
The bill would reduce the rate of tax on estates of $25 million or more to twice the capital gains rate (currently 30 percent, set to increase to 40 percent in 2011 unless extended).
Portable Spousal Estate and Gift Tax Exclusion Amount
The Permanent Estate Tax Relief Act of 2006 would simplify estate tax planning by allowing married couples to take full advantage of the $5 million exemption by carrying over any unused exemption to the surviving spouse.
Tax Provision
The provision creates a new 60 percent deduction for qualified timber capital gains. This deduction alleviates the disparate tax treatment of timber gains under current law (which is based upon the legal form of ownership of the underlying timber assets). The provision is effective for qualifying gains recognized from the date of enactment through calendar year 2008.