863 / What is the Section 2011 credit for state death taxes which can be taken against the federal estate tax?

For decedents dying before 2005, a credit was allowed against the federal estate tax for state death taxes–inheritance, legacy, estate and succession taxes–paid to any state of the United States or the District of Columbia with respect to property included in the gross estate (but see phaseout of credit, below).¹ The federal estate tax credit for state death taxes paid was not available where the property subject to state death taxes was not includable in the federal gross estate.² The credit is limited to the amount of state death taxes actually paid and does not include, for instance, the amount of any discount allowed by the state for prompt payment.

The credit is limited to specified percentages of the “adjusted taxable estate” in excess of $40,000. The “adjusted taxable estate” is the taxable estate reduced by $60,000. The maximum amount for which a credit can be taken was reduced by 25 percent in 2002, 50 percent in 2003, and 75 percent in 2004.³ The credit was replaced by a deduction for state death taxes (see Q 847) in 2005.⁴

All states collect at least the maximum credit. Some states have enacted estate taxes exactly equal to the maximum credit. Some states refer to the maximum credit as it existed prior to the phaseout by EGTRRA 2001. States that impose an inheritance tax also have an “additional estate tax” which is designed to absorb the difference between the inheritance tax and the maximum credit should the inheritance tax be less than the maximum credit. In most cases, however, the basic inheritance tax will exceed the maximum amount allowable as a credit.

1.    IRC § 2011.