Pres. Obama to propose estate tax increases

The following excerpts from Laura Meckler, Tax Boost Proposed for Estates, Firms, Wall St. J., May 9, 2009, show how the Obama administration plans to increase estate taxes (as well as other taxes) to pay for an overhaul of the health care system:

 One element would raise an estimated $24 billion over 10 years by tightening estate-tax rules, giving taxpayers less flexibility to minimize their liability on inherited goods by claiming a different value on the same item for different transactions. * * *

The provision regarding estates would prevent taxpayers from using two different valuations for the same items. Under current law, the White House official said, some people estimate a particular inherited item at one value for the purposes of the estate tax, but estimate the value of the same item at a higher amount when reporting it as a gift.

That is because the incentive is to undervalue items when paying the estate tax. But the incentive is to overvalue them when reporting gifts, so that the basis will be higher when calculating capital gains if the item is sold. Under the proposal, taxpayers would have to use the same value for both purposes.

Special thanks to Patrick S. Sylvester (Attorney & Counselor at Law, Sylvester Law Firm, PC) for bringing this article to my attention.