When you are handling the estate of a loved one, you might have to deal with the estate tax. Learning some basic information about the estate tax might help you understand how it will affect the estate.
Are there any deductions available for the estate tax?
There are five losses that are considered that reduce the estate tax. Losses during the administration of the estate and expenses for the administration of the estate are two deductions. Charitable contributions that are to qualifying property is another deduction. Mortgages and debt are also a deduction. The final deduction is the marital deduction, which pertains to any property in the estate that passes outright to the spouse of the decedent.
How is the value of the estate determined?
Estate values are determined by the fair market value of the estate. This means that the value of each asset is determined by what price a willing seller and a willing buyer would agree on for the asset if they had no compulsion to complete the transaction. Forced sale prices aren't considered as part of determining the fair market value. There are special considerations for family farms when it comes to the fair market value and reductions that might be available.
Estate tax issues can easily become complex. In fact, the IRS notes that an estate worth $1,000,000 usually has some complexity involved when it comes to the taxes. Because you don't want to run afoul of the IRS laws, it is vital that you understand all aspects of estate tax law before filing the return or doing anything with the estate.
Source: Internal Revenue Service, "Frequently Asked Questions on Estate Taxes," accessed Aug. 05, 2015