Personal Solutions
An Overview of the 2001 Tax Act
On June 7, 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 ("the Act"), which provides a tax cut of $1.35 trillion over the next decade. Under the Act:
- Estate tax rates are gradually reduced, then repealed for one year (2010).
- The gift tax remains in effect throughout this period. The gift tax lifetime exemption is increased in year 2002 to $1 million and stays "frozen" at that level. Furthermore, the gift tax is retained even after the estate tax is repealed in 2010. That year, the top gift tax rate is set at the highest personal income tax rate (35%). In 2011, the top gift tax rate goes back to 55%.
- Beginning in 2010, a carryover basis rule will apply to assets transferred at death. A limited basis step-up will permit the basis of appreciated assets to be increased by up to a total of $1.3 million (plus an additional $3 million for transfers to a surviving spouse).
- Non-resident aliens will be allowed to increase the basis of property up to $60,000.
Because of a "sunset provision" in the Act, these changes will apply only to individuals who die in 2010.
- Although repeal takes effect in 2010, pre-act law is reinstated on January 1, 2011, under the “sunset provision.”
The table below summarizes estate tax changes.
| Calendar Year | Estate & GST Tax & Death Time Transfer Exemption | Lifetime Gift & Tax Exemption | Highest Estate, GST, Gift Tax Rates |
|---|---|---|---|
| 2004 | $ 1.5 million | $ 1 million | 48% |
| 2005 | $ 1.5 million | $ 1 million | 47% |
| 2006 | $ 2 million | $ 1 million | 46% |
| 2007 | $ 2 million | $ 1 million | 45% |
| 2008 | $ 2 million | $ 1 million | 45% |
| 2009 | $ 3.5 million | $ 1 million | 45% |
| 2010 | N/A (taxes repealed) | $ 1 million | 35% (Top individual income tax rate) |
| 2011 ("Sunset") | $1 million ($ 1,120,000 indexed from 2003 for GST Tax) |
$ 1 million | 55% |
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