Obama Signed the Tax Deal Into Law

On Friday, December 17, 2010, President Obama signed an $858 billion tax bill into law, extending the Bush-era tax cuts another two years. Under the law, the individual estate tax exemption for the next two years is $5 million, and a 35% tax rate.

Further, under the tax bill estate assets will receive stepped up basis - that is, the basis of the assets of such estates is their fair market value as of date-of-death of the decedent, not the modified carryover basis of the decedent. What is the tax benefit of stepped up basis? Any appreciation in the value of the asset that occurred during the decedent's lifetime will not be subject to capital gains tax when sold by the heir.

Executors of the estates of decedents who died in 2010 can elect the 2010 law (no estate tax, but no stepped up basis for assets either) or the 2011 law (35% tax rate, $5 million exemption, and stepped up basis for assets), whichever works out best for the heirs.