- quote -

You calculate the tax on $1,600,000 and then subtract the
tax on $1,500,000 (the exemption credit), making the tax
$45,000, not $23,800.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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John Baker <Baker.JH[at]Verizon.net> writes:

- quote -

Incorrect.

- quote -

Incorrect.

- quote -

Correct, but $100,000 is not the taxable amount.

- quote -

Incorrect.

- quote -

You're misunderstanding how the unified gift/estate
tax credit works.

You do NOT have a $1,500,000 exemption.

Rather, you have a $555,800 gift/estate tax CREDIT.

You compute the tax on the full amount, then deduct
the credit.

The tax on a taxable estate of $1,600,000 is $603,800.
After applying the credit, the tax due is $48,000.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"John Baker" <Baker.JH[at]Verizon.net> asked:

- quote -

It is not correct, because that's not how the "exemption"
(which technically is a *credit* for tax on an "exclusion
amount") works.

The way the law is worded you first need to (tentatively)
calculate the tax on $1.6 million (Tax Code Sec. 2001),
which is $600,800. You then subtract -- get a tax credit for
-- an amount equal to the tax on the "exclusion amount" (Tax
Code Sec. 2010), which in years 2004 & '05 equals $555,800
on an exclusion amount of $1.5 million. The net result is a
federal estate tax of $45,000 (w/ further adjustment for
State level taxes, etc.)

Bob Daniels http://taxprofessor.blogspot.com

("There's no luggage rack on a hearse, and no pockets in a
shroud." - 'G)

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John Baker wrote:

- quote -

Sort of. Actually there is a credit given that has the
effect of an exemption.

- quote -

In a manner of speaking.

- quote -

No. First you calculate the tax on $1,600,000, and then
subtract the tax on $1,500,000. You pay the tax in the
highest bracket which applies while the exemption applies to
the lowest brackets.

Stu

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John Baker wrote:

- quote -

True, there is only $100,000 of taxable assets in the
estate, but you are assuming the wrong $100,000. The taxable
increment is the amount OVER $1,500,000 and up to
$1,600,000.

There is not really an exemption of the first $1,500,000 of
assets. There is a CREDIT allowed for the tax on that
$1,500,000. To calculate the correct tax amount, you have to
calculate the tax on a net estate of $1,600,000 and then
SUBTRACT the exemption credit from that amount. You will
find that the actual tax is much higher than you have
calculated, and additional amounts are taxed at rates up to
48%.

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"John Baker" <Baker.JH[at]Verizon.net> wrote:

- quote -

Incorrect. There is no exemption of $1,500,000. There is a
tax credit that renders the first $1,500,000 tax free. So,
in effect, the tax on $1.6mill is the tax on $1.6mill minus
the tax on $1.5mill.

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John Baker wrote:

- quote -

Not exactly. What's commonly referred to as an exemption is
actually a credit. If you look at the estate tax return
(Form 706), you'll see what you do is calculate the tax on
the full estate (less allowable deductions, but leaving that
aside). At 1.6 million, the tax would be $898,300.
Assuming you haven't used any of your unified credit, you
then get to subtract $555,800.

- quote -

Bwahahaha. $342,500.

- quote -

The exemption isn't really an exemption.

Phoebe

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This is a question that would only be asked by someone who
didn't understand taxes much.

Assume an estate of $1,600,000, I would like to know if the
following general statements are correct:.

The current exemption is $1,500,000

There is therefore $100,000 taxable

The unified tables estate/Gift tax tables indicate that the
federal tax for $100,000 is $23,800.

Hence, on an estate of $1,600,000 the FEDERAL estate tax is
$23,000 ( in 2004).

IS THIS CORRECT? If it isn't, where is the fatal flaw?

Best wishes and thanks in advance,

John Baker

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