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A Brief History of Estate Taxes

Federal estate taxes have long since been a lucrative source of funding for the federal government.

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

In  1797, Congress instituted a system of federal stamps that were required  on all wills offered for probate when property (land, homes) was  transferred from one generation to the next. The revenue from these  stamps was used to build the navy for an undeclared war with France,  which had begun in 1794. When the crisis ended in 1802, the tax was  repealed.

Estate taxes returned during the build up to  the Civil War. The Revenue Act of 1862 included an inheritance tax,  which applied to transfers of personal assets. In 1864, Congress amended  the Revenue Act, added a tax on transfers of real estate, and increased  the rates for inheritance taxes. As before, once the war ended, the Act  was repealed.

In 1898, a federal legacy tax was  proposed to raise revenue for the Spanish-American War. This served as a  precursor to modern estate taxes. It instituted tax rates that were  graduated by the size of the estate. The end of the war came in 1902,  and the legacy tax was repealed later that same year.

In  1913, however, the 16th Amendment to the Constitution was ratified –  the one that gives Congress the right to “lay and collect taxes on  incomes, from whatever source derived.” This amendment paved the way for  the Revenue Act of 1916, which established an estate tax that in one  way or another, has been part of U.S. history since then.

In  2010, the estate tax expired – briefly. But in December 2010, Congress  passed the Tax Relief, Unemployment Insurance Reauthorization, and Job  Creation Act of 2010. The new law retroactively imposed tax legislation  on all estates settled in 2010.

In 2012, the American Tax Relief Act made the estate tax a permanent part of the tax code.

As  part of the 2017 Tax Cuts and Jobs Act, estate tax rules were adjusted  again. The estate tax exemption was raised to $11.2 million, a doubling  of the $5.6 million that previously existed. Married couples may be able  to pass as much as $22.4 million to their heirs. As of 2019, that rate  has risen to $11.4 million per individual (and $22.8 million for married  couples). The Act is set to expire in 2025. If you’re uncertain about  your estate strategy, it may be a good time to review the approach you  currently have in place.2,3

Estate Taxes and Overall Federal Revenues

Estate taxes typically account for less than one percent of total federal revenue.2

Chart Source: Center on Budget and Policy Priorities, 20

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Henry A. Regan
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September 12, 2024

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