How to Determine Tentative Tax Base

by David Rodeck ; Updated July 27, 2017
The IRS charges estate taxes on the transfer of property at death.

The Internal Revenue Service taxes the transfer of property at death with the estate tax. In general, this tax applies to amounts in excess of $5.34 million in a decedent's estate. A number of deductions are applied against a deceased's estate to reduce the value of estate taxes. The tentative tax base is the remaining estate after all deductions have been taken. Multiply the tentative tax base by the 2014 estate tax rate of 40 percent to calculate estate taxes due.

Step 1

Add up the value of all assets owned by the decedent at the time of death. You must use the fair market value of all assets on the date of death. This calculates the decedent's gross estate.

Step 2

Subtract the decedent's funeral expenses, estate administration expenses, unpaid debts and unpaid taxes from the gross estate. This calculates the adjusted gross estate.

Step 3

Subtract the value of all assets transferred to the decedent's spouse and to charities. There is an unlimited estate tax deduction for spousal and charitable transfers. This calculates the taxable estate.

Step 4

Add the value of all taxable gifts made by the decedent while alive to the taxable estate. Taxable gifts are the value of all gifts made over the lifetime gifting limit of $5.34 million. This calculation provides the tax base.

Step 5

Subtract the $5.34 million estate exemption from the tax base. This calculates the tentative tax base.

Tips

  • For estates worth $5.34 million or more, you may not distribute the inheritance until you submit your estate tax return and any owed gift taxes to the IRS.

Warnings

  • The $5.34 million estate exclusion also applies to lifetime gifts - gifts you give in any year that exceed that year's annual exclusion amount (currently $14,000) can be charged against your lifetime limit as an alternative to oaying gift tax on them. If you have taken advantage of this exclusion to avoid gift taxes, it reduces your estate tax sxclusion.

    Note that the tax code is under constant scrutiny and parts of it are changed every year. Before embarking on any long-term tax strategy to minimize your estate taxes, consult with a trusted tax professional.

About the Author

David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.

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