Choosing between an Estate Tax and a Basis Carryover Regime: Evidence from 2010

32 Pages Posted: 10 Oct 2016

See all articles by Robert N. Gordon

Robert N. Gordon

Twenty-First Securities Corporation

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: October 2016

Abstract

Executors of estates for decedents in 2010 could choose between an estate tax regime and a basis carry-over regime. For most executors, this created a tradeoff between a current estate tax payment and a future capital gains tax liability for beneficiaries who inherited assets with carryover-basis. Various features of a decedent’s estate, including the gross value of assets, outstanding debts, whether the decedent resided in a state with an estate tax, and the basis of assets held at the time of death, affected the relative tax burden under the two regimes. Some executors chose to file estate tax returns for decedents from 2010, but these estate tax filings resulted in very little estate tax revenue. Estate tax filers had more leverage, were more likely to be from a state with an estate tax or from married decedents, were less likely to have made lifetime gifts, and had larger charitable bequests – all factors that are associated with reduced estate tax liability. While it is not possible to tell definitively whether executors chose the most tax-efficient option when confronted with the two tax regimes, evidence from tax returns suggests that an increase of one percent of estate value in the difference between estate tax liability and prospective tax liability under the carryover basis regime reduced the likelihood of filing an estate tax return by between 0.3 and 1.5 percentage points.

Suggested Citation

Gordon, Robert N. and Joulfaian, David and Poterba, James M., Choosing between an Estate Tax and a Basis Carryover Regime: Evidence from 2010 (October 2016). NBER Working Paper No. w22722. Available at SSRN: https://ssrn.com/abstract=2850256

Robert N. Gordon (Contact Author)

Twenty-First Securities Corporation ( email )

780 Third Avenue
New York, NY 10017
United States

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-350
Cambridge, MA 02142
United States
617-253-6673 (Phone)
617-253-1330 (Fax)

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