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Coming Soon: Burdensome Estate Taxes

Date: December 01, 2006
Many middle-income families will be pulled into the estate-tax net, as home prices push more estates past the $1 million threshold.

If you inherit more than $1 million in property after 2010, you may be held liable for substantial estate taxes — that is, unless current estate tax laws are reformed.

Experts predict that anywhere between $41 trillion and $136 trillion will be transferred in the next 50 years as a result of an aging population. Many middle-income families will be pulled into the estate tax net, as increasing home prices push more estates past the $1 million threshold, according to recent research conducted by the National Association of Homebuilders.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax, which currently is 46 percent on amounts exceeding $2 million, will be repealed in 2010. However, without permanent repeal or reform, relief will be short-lived. The estate tax is scheduled to return in 2011, reverting to the pre-2001 rate of 55 percent on amounts of more than $1 million.

NAHB President David Pressley calls the current law “a ticking time bomb.” Without Congressional action to reform the law, “millions of additional families will one day face this burdensome tax.”

Employing a conservative forecast of housing prices, the NAHB report, entitled “The Estate Tax and Housing,” shows that nearly 3.5 million homes will exceed $1 million in market value in 2011.

Factoring in mortality rate projections from the Centers for Disease Control, NAHB estimates that 50,000 of these households would be subject to the estate tax in 2011. The Joint Committee on Taxation estimates there’ll be approximately 110,000 estate taxpayers in 2011, and NAHB finds that 46 percent of these taxpayers will be paying the tax based solely on housing wealth.

“Millions of additional families who today own homes valued between $450,000 and $550,000 will exceed $1 million in total assets in 2011,” NAHB says in its report.

There is hope. Although a repeal of the law by the next Congress is not expected, some type of reform is likely, says Brian Phillips of the Tax Foundation.

— By Camilla McLaughlin for REALTOR® Magazine Online

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