November 28, 2011

The latest updates to the estate tax rules that took effect in January introduced a new form and a new filing requirement.

The new form is “Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent.” If you’re the executor of an estate opened in 2010, you’ll file Form 8939 when you choose to apply special “basis adjustment” rules. Under these rules, you can elect to increase the basis of certain estate assets passed to spouses and other beneficiaries.

The due date for Form 8939 was extended to January 17, 2012.

Note: If you’re a beneficiary and you’ve already sold property inherited in 2010, the election could affect your individual tax return.

The new filing requirement applies to estates opened in 2011 and 2012. To benefit from “portability,” these estates must file an estate tax return (Form 706), even if a return is not otherwise required.

Why would you want to file a return just to preserve portability? Portability lets married couples shield additional amounts from estate tax by electing to carry any unused portion of the estate tax exclusion from the first estate to the surviving spouse’s estate. The exclusion for each estate is $5 million for 2011 and $5.12 million for 2012.

Please contact us if you would like details about these and other estate tax changes.