Calculating The 2% Portion Of Deferred Tax 1998-2020

Calculating the 2% Portion of Deferred Tax - Section 6601(j)(2)  1998 - 2020

 

Year of Death

 

Business Value Equal to Applicable Exclusion Amount

 

First $1,000,000 of Taxable Business Value
Indicated Inflation Factor
Adjusted $1,000,000 of Taxable Business Value Rounded to Next Lowest $10,000
Total Business Value on Which Tentative Tax is Computed
Tentative Tax on Total Business Value
Applicable Credit Amount (Tax on Amount in Column (a))
Tax Deferred at 2%: Tentative Tax Less Applicable Credit Amount
        (b) x (c) (a) + (d)     (f) - (g)
  (a) (b) (c) (d) (e) (f) (g) (h)
1998 625,000 1,000,000 100.00% 1,000,000 1,625,000 612,050 202,050 410,000
1999 650,000 1,000,000 101.67% 1,010,000 1,660,000 627,800 211,300 416,500
2000 675,000 1,000,000 103.41% 1,030,000 1,705,000 648,050 220,550 427,500
2001 675,000 1,000,000 106.83% 1,060,000 1,735,000 661,550 220,550 441,000
2002 1,000,000 1,000,000 110.33% 1,100,000 2,100,000 829,800 345,800 484,000
2003 1,000,000 1,000,000 112.50% 1,120,000 2,120,000 839,600 345,800 493,800
2004 1,500,000 1,000,000 114.33% 1,140,000 2,640,000 1,088,000 555,800 532,200
2005 1,500,000 1,000,000 117.17% 1,170,000 2,670,000 1,095,700 555,800 539,900
2006 2,000,000 1,000,000 120.70% 1,200,000 3,200,000 1,332,800 780,800 552,000
2007 2,000,000 1,000,000 125.00% 1,250,000 3,250,000 1,343,300 780,800 562,500
2008 2,000,000 1,000,000 128.50% 1,280,000 3,280,000 1,356,800 780,800 576,000
2009 3,500,000 1,000,000 133.50% 1,330,000 4,830,000 2,054,300 1,455,800 598,500
2010 5,000,000 1,000,000 134.00% 1,340,000 6,340,000 2,199,800 1,730,800 469,000
2011 5,000,000 1,000,000 136.10% 1,360,000 6,360,000 2,206,800 1,730,800 476,000
2012 5,120,000 1,000,000 139.40% 1,390,000 6,510,000 2,259,300 1,772,800 486,500
2013 5,250,000 1,000,000 143.10% 1,430,000 6,680,000 2,617,800 2,045,800 572,000
2014 5,340,000 1,000,000 145.00% 1,450,000 6,790,000 2,661,800 2,081,800 580,000
2015 5,430,000 1,000,000 147.00% 1,470,000 6,900,000 2,705,800 2,117,800 588,000
2016 5,450,000 1,000,000 148.10% 1,480,000 6,930,000 2,717,800 2,125,800 592,000
2017 5,490,000 1,000,000 149.25% 1,490,000 6,980,000 2,737,800 2,141,800 596,000
2018
11,180,000 1,000,000 152.28% 1,520,000 12,700,000 5,025,800 4,417,800 608,000
2019 11,400,000 1,000,000 155.23% 1,550,000 12,950,000 5,125,800 4,505,800 620,000
2020 11,580,000 1,000,000 157.70% 1,570,000 13,150,000 5,205,800 4,577,800 628,000

 

Nov-07-2019:  The 2020 figures are shown in Rev. Proc. 2019-44 at items .41 and .51.   

Sep-13-2019:  Figures for 2020 are projections. Inflation factor provided by Daniel B. Evans, Esq. at Webcalculators (www.wcalcs.com).

Nov-15-2018:  Rev. Proc. 2018-57 provides the inflation-adjusted figures for estates of decedents dying in 2019. Item .41 provides a basic exclusion amount of $11,400,000 for 2019 and Item .51 the $1,550,000 inflation-adjusted business value in column (d). The amount of tax drawing interest at 2% is therefore $620,000.

Notes Regarding the 2018 Figures: On October 19, 2017 Rev. Proc. 2017-58 was released. Item .35 provided a basic exclusion amount of $5,600,000 for 2018 and the $1,520,000 inflation-adjusted business value in column (d). The amount of tax drawing interest at 2% was therefore $608,000. At the time those figures were reflected in this table.

The Tax Cuts and Jobs Act, PL 115-97, (TCJA) was signed into law by President Trump on December 22, 2017. Title I, Part VI, of the Act provides:

Part VI--Increase In Estate And Gift Tax Exemption

(Sec. 11061) This section doubles the estate and gift tax exemption amount for decedents dying or gifts made after December 31, 2017, and before January 1, 2026, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.)

In response, Rev. Proc. 2018-18 was published to modify some of the terms previously published in Rev. Proc. 2107-28. Item .35 of Rev. Proc. 2018-18 adjusted the basic exclusion amount for 2018 to $11,180,000 to generate a unified credit of $4,417,800. 

TCJA also changed the calculation of the annual CPI inflation adjustments by using chained CPI factors. Unclear was how this change would affect the calculation of the inflation-adjusted business value in column (d), above. Further analysis reveals that the methodology of calculating this inflation adjustment preserves the inflation adjustments before 2018, but modifies the calculations to make them compatible with the chained CPI adjustments beginning in 2018.

This means that the 2018 inflation-adjusted business value in column (d) remains $1,520,000 and the maximum amount of tax that draws interest at 2% under section 6601(j) remains $608,000.

Note: The first estate tax returns for decedents dying in 2018 were due in October 2018. The 2018 Instructions for Form 706 were published in November 2018. Page 15 of the Instructions provides that the maximum amount of tax drawing interest at 2% is $608,000.

© Copyright 2010 - 2019 by Nelson M. Blakely. All rights reserved.

Notes

The inflation factor for 2017 is rounded down to the amount indicated by Rev. Proc. 2016-55, which provides in section 3.45 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,490,000." The section 2010(c) unified credit for 2016 is based on the "Basic Exclusion Amount" of $5,490,000 stated in section 3.35, which yields a unified credit of $2,141,800. The calculated portion of deferred tax drawing 2% interest is $596,000.
The inflation factor for 2016 is rounded down to the amount indicated by Rev. Proc. 2015-53, which provides in section 3.42 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,480,000." The section 2010(c) unified credit for 2016 is based on the "Basic Exclusion Amount" of $5,450,000 stated in section 3.33, which yields a unified credit of $2,125,800. The indicated portion of deferred tax drawing 2% interest is $592,000. This figure appears on page 15 of the 2016 Form 706 instructions.
The inflation factor for 2015 is rounded down to the amount indicated by Rev. Proc. 2014-61, which provides in section 3.42 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,470,000." The section 2010(c) unified credit for 2015 is based on the "Basic Exclusion Amount" of $5,430,000 stated in section 3.33, which yields a unified credit of $2,117,800. The indicated portion of deferred tax drawing 2% interest is $588,000. This figure appears on page 15 of the 2015 Form 706 instructions.
The inflation factor for 2014 is rounded down to the amount indicated by Rev. Proc. 2013-35, which provides in section 3.41 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,450,000." The section 2010(c) unified credit for 2014 is based on the "Basic Exclusion Amount" of $5,340,000 stated in section 3.32, which yields a unified credit of $2,081,800.
The inflation factor for 2013 is rounded down to the amount indicated by Rev. Proc. 2012-41, which provides in section 3.26 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,430,000." The section 2010(c) unified credit for 2013 is based on the "Basic Exclusion Amount" of $5,250,000 stated in section 3.13, which yields a unified credit of $2,045,800.
The inflation factor for 2012 is rounded down to the amount indicated by Rev. Proc. 2011-52 (IRB 2011-45 at page 708), which provides in section 3.38 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,390,000." In section 3.29, the basic exclusion amount for determining the unified credit in 2012 increases to $5,120,000. (Section 2.05 notes that the section 2010(c) basic exclusion amount used in determining the unified credit for 2010 is $5,000,000.)
The inflation factor for 2011 is rounded down to the amount indicated by Rev. Proc. 2010-40, which provides in section 3.27 that "the "2-percent portion" (for purposes of calculating interest under §6601(j)) of the estate tax extended as provided in §6166 is $1,360,000." Beginning in 2011, the Applicable Exclusion Amount can include the Deceased Spouse Unused Exclusion (DSUE) amount.
The inflation factor for 2010 is rounded down to the amount indicated by Rev. Proc. 2009-50, which provides in section 3.36 that "the "2-percent portion" (for purposes of calculating interest under § 6601(j)) of the estate tax extended as provided in § 6166 is $1,340,000."

 

For estates of decedents dying on and after January 1, 1999 through December 31, 2003, the figures for the Business Value Equal to the Applicable Exclusion Amount, Applicable Credit Amount, and the amount of tax deferred at 2% are to be reduced in response to any Section 2057 Qualified Family-Owned Business Interest (QFOBI) deduction in excess of $625,000. The maximum QFOBI deduction of $675,000 results in an Applicable Exclusion Amount of $625,000 and an Applicable Credit Amount of $202,050. QFOBI deductions greater than $625,000 but less than $675,000 result in a sliding scale of adjustments to the Applicable Exclusion Amount and Applicable Credit