How to Calculate Estate Tax

Step-by-Step Guide

1. 1

   Step 1: Be aware of state estate taxes.

   While only the wealthiest people in the United States will have to worry about the federal estate tax, there are state estate tax laws that may apply to a larger number of people.
   
   If you live in one of the following states, you will need to check and see if your estate is large enough to be subject to their estate tax laws:
   Connecticut, Delaware, Washington, D.C., Hawaii, Illinois, Maine, Maryland Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Tennessee, Vermont, and Washington.
2. 2

   Step 2: Choose the date of calculation that you will use for estate valuation purposes.

   You may select the date of death or the date six months after the date of death, as the date of calculation.
   
   The date six months after the date of death is referred to as the "alternate valuation date."If you choose the date of death, all assets should be valued as of that date, regardless of dates of distribution or sale.
   
   If you choose the alternate valuation date and any asset is sold or distributed during the first six months following the date of death, the estate's assets are valued a little differently.
   
   All assets not sold or distributed during the six months after the date of death are valued as of the alternate date.
   
   All assets sold or distributed within the six months after the date of death, are valued as of the date of sale or distribution. , You may want to have some of these items professionally appraised to ensure accuracy.
   
   There are penalties for undervaluing estates.
   
   Personal property includes anything other than land and things that are affixed to the land (real property).
   
   This includes property such as:
   Bank accounts Vehicles Household goods Businesses Jewelry Intellectual property (copyrights, trademarks, patents) Securities Wages due or other accounts receivables , To ensure an accurate valuation, use Internal Revenue Service (“IRS”) Form 712, located on the IRS’s website at http://www.irs.gov/pub/irs-pdf/f712.pdf.
   
   The value of policies owned by the decedent and payable to his or her heirs, as well as policies payable to the estate regardless of who owns them, should be calculated using IRS form
   712. , Because most states require that a licensed appraiser appraise all real property for inheritance tax purposes, you will likely already have property appraisals.
   
   However, even if your state does not require a formal appraisal, it is best to obtain one so that you can be sure that you are reporting accurate information to the IRS., For information on what property transfers are subject to the tax, consult a certified public accountant, estate tax return preparer, or tax or estate attorney.
   
   In general, this is any property which was gifted in excess of the annual exclusion (currently $14,000) or in the process of being transferred at the annual exclusion rate, but the complete amount was not transferred prior to death.
   
   For example, property that was being transferred on a loan with annual forgiveness equal to the annual gift exclusion, the property will be included in the estate if there is still any amount owing at the time of death.
3. 3

   Step 3: Determine the value of personal property.

4. 4

   Step 4: Calculate the value of all life insurance policies.

5. 5

   Step 5: Determine the fair market value of all real property.

6. 6

   Step 6: Determine the value of any property transferred before the decedent’s death

7. 7

   Step 7: which is subject to federal estate taxes.

Detailed Guide

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