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July 09, 2020

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Effects of American Taxpayer Relief Act Overshadowed by Sequester Talk

With much of the current news cycle discussing mandatory federal budget cuts known as the "sequester," one may tend to forget that Congress narrowly averted the country's fall over the "fiscal cliff " by enacting the American Taxpayer Relief Act of 2012 (the "ATRA").

The ATRA makes permanent the $5,000,000 "applicable exclusion amount" (i.e. each person's gift and estate tax "exemption" amount). The exemption amount is important because it is the dollar value of assets that can be transferred during life or at death without any adverse gift tax or estate tax consequences.   The estate and gift taxes are all indexed for inflation going back to 2011, so the starting point for each tax in 2013 is actually $5,250,000. This amount will continue to increase periodically based on the rate of inflation.  Unfortunately, the ATRA increased the estate tax rate on taxable estates over $5,250,000 from 35 percent to 40 percent.  In addition, the ATRA continues the concept of "portability" which means that if the estate of the first of a couple to die is not large enough to fully utilize his or her applicable exclusion amount, the unused portion is shifted to the surviving spouse.

Also of interest to farmers is the extension of the "enhanced deductibility" of donations of conservation easements which allows donors to deduct from their taxes the value of an easement up to 50% of their annual income (and up to 100% in some situations) with any remaining easement value carried forward for up to 15 years.  Unlike the permanent changes to the estate tax laws, the enhanced deductibility provisions are applicable only to easements donated in 2013 and retroactively to 2012.  

© 2020 Varnum LLPNational Law Review, Volume III, Number 73


About this Author

Dean F. Reisner, Varnum, Corporate attorney

Dean is a partner in Varnum's Corporate, Real Estate and Estate Planning Practice Teams. He concentrates his practice on business transactional matters, general corporate work, real estate acquisition, real estate sales and development, estate planning, and agricultural law.  In addition to general business representation, Dean also works closely with his clients and their advisors, including accountants, financial advisors and other consultants, to create organizational structures, business succession plans and estate plans that allow families to plan for current and...