How to Calculate an IRS Estate Tax Deduction

Video Transcript

"We're here to talk about estate taxes. The estate tax is something that is number one, it's not even an issue if the amount of the estate is less than the allowable credit which at this point for 2008, you're allowed a 2 million dollar threshold for your estate. If it falls below 2 million dollars, then there won't be estate taxes on it. The other issue is if the estate is going to be willed to the surviving spouse, then there are no estate taxes at that time, it doesn't actually get taxed until it passes further down the line. If you need to calculate the amount of estate tax, you have to look at all of the assets of the deceased whether it be houses, cars, proceeds from insurance or a number of other, just anything that would come to mind as being an asset would be considered property of the deceased and would fall into the total estate number if you will. What you do is you calculate all of the proceeds, all of the assets and come up with a number that if it exceeds the 2 million dollar mark, then you have to start calculating what your taxes would be. But once you calculate the total value of the estate, then you get to look at what's deductible. Certain things are deductible from that estate, for instance funeral expenses, the cost of the probate for the attorney to do probate, those sort of things are all deductible. Additionally any outstanding debts, if a balance is owed on a mortgage or on a car, those are all deductible from the amount of the value of the estate. Once you get all your deductions together, you would take the total value of the estate, less the unified credit of 2 million dollars and then that gives you a balance left of the value of the assets of the estate and from that you would subtract your deductions and once you do that you come up with the net taxable amount of the estate and that is typically taxed at a 45% rate. So you want to make sure that you keep up with all your deductions and take advantage of anything that's a legitimate deduction and maintain that in your records."