IRS Announces 2011 Inflation Adjustments

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The IRS recently announced inflation adjustments for several tax provisions related to estate planning.

  • Valuation of Qualified Real Property in Decedent’s Gross Estate. The maximum reduction in estate tax value for qualifying real property used in a farm or business valued under section 2032A is $1,020,000 for estates of decedents dying in 2011.
  • Interest on a Certain Portion of the Estate Tax Payable in Installments. The value of a closely-held business interest on which the payment of estate taxes may be deferred (and on which interest will be charged at a rate of 2%) is increased to $1,360,000 for estates of decedents dying in 2011.
  • Annual Exclusion for Gifts. The gift tax annual exclusion remains at $13,000 for 2011.
  • Annual Exclusion for Gifts to Non-U.S. Citizen Spouse. The annual exclusion for gifts to a non-U.S. citizen spouse increases to $136,000 for 2011.
  • Tax Responsibilities of Expatriation. The exemption for appreciation in assets recognized by a covered expatriate is increased to $636,000 for expatriations that occur in 2011.
  • Expatriation to Avoid Tax. The standard for determining whether an expatriate is a “covered expatriate” under section 877A(g)(1) is based on whether his or her average annual net income tax exceeded $147,000 (increased from $140,000) for the five taxable years ending before the date of expatriation for tax years beginning in 2011.
  • Notice of Large Gifts Received from Foreign Persons. For 2011, gifts from foreign persons in excess of $14,375 in a taxable year are required to be reported.

See Rev. Proc. 2010-40 (Nov. 15, 2010).