The Taxpayer Relief Act of 1997 did not modify the estate and gift tax rate schedule. However, it provided for an increase in the exemption amount to $1 million in increments between 1998 and 2006. A table at the bottom of this page shows the phase-in of the increased exemption.
TAXABLE ESTATE........................................ TAX
$675,000 to $750,000 ....................37% of the excess over $675,000
$750,000 to $1,000,000................ .$27,750 plus 39% of the excess over $750,000
$1,000,000 to $1,250,000.............. $125,250 plus 41% of the excess over $1,000,000
$1,250,000 to $1,500,000...............$227,750 plus 43% of the excess over $1,250,000
$1,500,000 to $2,000,000...............$335,250 plus 45% of the excess over $1,500,000
$2,000,000 to $2,500,000...............$560,250 plus 49% of the excess over $2,000,000
$2,500,000 to $3,000,000...............$805,250 plus 53% of the excess over $2,500,000
$3,000,000 to $10,000,000.............$1,070,250 plus 55% of the excess over $3,000,000
$10,000,000 to $17,184,000...........$4,920,250 plus 60% of the excess over $10,000,000 *
Over $17,184,000...........................$9,230,650 plus 55% of the excess over $17,184,000*
* This 60% bracket results from the imposition of a surtax "equal to 5 percent of so much of the amount (with respect to which the tentative tax is to be computed) as exceeds $10,000,000 but does not exceed the amount at which the average tax rate under this section is 55 percent." Internal Revenue Code Section 2001(c)(2). The intended effect of this language is to phase out the benefit of the unified credit and the graduated rate structure for estates over $10 million. If that intent were carried out, the upper limit of the surtax would be as shown in the far right hand column of the table below.
However, the statutory language as enacted by section 501 of the Taxpayer Relief Act of 1997 does not accomplish that result. Instead, it phases out only the benefit of the graduated tax rates -- not the unified credit. A technical amendment included in the IRS Restructuring bill (H.R. 2676) would have corrected the error. However, bill as passed by Congress and signed by the President on July 22, 1998 does not include the correction. As a result, the surtax will phase out only the benefit of the graduated rate structure, and the 60% bracket will extend only between $10,000,000 and $17,184,000.
|
Unified Credit |
Amount Exempt from Tax |
Upper
Limit of 5% |
|
|
1998 |
$ 202,050 | $ 625,000 | $ 21,225,000 |
|
1999 |
$ 211,300 | $ 650,000 | $ 21,410,000 |
|
2000 |
$ 220,550 | $ 675,000 | $ 21,595,000 |
|
2001 |
$ 220,550 | $ 675,000 | $ 21,595,000 |
|
2002 |
$ 229,800 | $ 700,000 | $ 21,780,000 |
|
2003 |
$ 229,800 | $ 700,000 | $ 21,780,000 |
|
2004 |
$ 287,300 | $ 850,000 | $ 22,930,000 |
|
2005 |
$ 326,300 | $ 950,000 | $ 23,710,000 |
|
2006 and after |
$ 345,800 | $ 1,000,000 | $ 24,100,000 |