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Highlights of the Taxpayer Relief Act of 2012

In a “spare me the drama” performance in the first week of January, Congress passed tax legislation that was
advertised to not raise income taxes for filers making from $100,000 to $400,000. When the effects on marginal
income tax rates are considered, this group got whacked just like the upper income taxpayers.

1. Estate tax changes

Congress bungled the administration of the estate tax in 2010, allowing it to lapse and letting several billionaires
to escape estate taxes entirely. The worst nightmare of the upper middle class was that Congress would take no
action before 2013, allowing the amount not subject to estate taxes to be only $1,000,000.

The following changes were included in the Taxpayer Relief Act:

  • The unified credit was increased to a level that exempts $5,250,000 of assets from the federal estate tax in 2013.
  • Going forward the unified credit will be indexed for inflation.
  • Unused unified credit amounts can now be transferred to a surviving spouse. A married couple can transfer a combined $10,500,000 to non-spousal heirs free of federal estate tax.
  • The top estate tax rate will be 40% starting with taxable estate of $1,000,000.