How the estate tax exemption works

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Q. If one has an estate that exceeds the exemption limit, is the tax on the amount above the limit or on the entire estate? I’m confused.
— Trying to get it

A. The estate tax can certainly be confusing.

A federal estate tax is imposed only on that portion of the estate’s value that exceeds the exemption amount, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

For 2017, the federal amount exempted from death taxes is $5.49 million, and the top federal estate tax rate is 40 percent, she said.

The answer is more complicated for New Jersey’s estate tax.

Whitenack said the New Jersey estate tax exemption was increased from $675,000 to $2 million for the year 2017, and it’s scheduled to be repealed entirely effective Jan. 1, 2018.

“For estates of New Jersey residents who die in 2017, the estate tax is calculated on the amount of the taxable estate in accordance with the current Internal Revenue Code, employing a progressive rate schedule with rates ranging from zero to 16 percent,” Whitenack said.

But there are also credits against the estate tax, including the portion of the tax attributable to property located outside New Jersey, any New Jersey inheritance tax, and a credit equal to the tax due on the $2 million exclusion amount, or $99,600.

You can learn more from the Division of Taxation here.

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This post was initially published in April 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.