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2010 Form 8939 is Due on November 15, 2011

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On August 5, 2011, the Internal Revenue Service issued guidance on the treatment of basis for certain estates of decedents who died in 2010. The guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply. Form 8939, the basis allocation form required to be filed by executors opting out of the estate tax, is due on November 15, 2011.

Under the guidance issued today, an executor must file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, to opt out of the estate tax and have the new carryover basis rules apply. The IRS expects to issue Form 8939 and the related instructions early this fall.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939.

Estate Planning Lawyers Minneapolis | Latest Estate and Gift Tax Cuts

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Prior to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) and after abolishment of the estate tax for decedents dying in 2010, the estate tax was scheduled to return in the tax year 2011 with a maximum tax rate of 55% and a $1 million exclusion.

Under the Act, however, the maximum estate tax rate for decedents dying on or after January 1, 2011, is 35% and an applicable exclusion amount is $5 million ($10 million for married couples) for decedents dying on or after January 1, 2011, and on or before December 31, 2012. The Act also reinstates the stepped-up basis regime for assets included in the estate.

Similarly, the maximum gift tax rate will be 35% for the tax years 2011 and 2012 with a maximum applicable exclusion amount of $5 million. It is important to note that for gifts made after December 31, 2009, and before January 1, 2011, the gift tax is computed based on a top tax rate of 35% and a maximum applicable exclusion amount of $1 million.

Note that the Act includes additional provisions on the estate and gift taxes. For example, estates of decedents who died after December 31, 2009 but before January 1, 2011, may elect to apply the 35% rate and stepped-up basis regime instead of the carryover basis regime otherwise applicable for 2010. The Act further includes a “portability” provision which would allow a surviving spouse to take advantage of the unused portion of the estate tax exclusion of his or her predeceased spouse, thereby providing the surviving spouse with a larger exclusion amount.