New Jersey Estate Tax Repeal
The promised repeal of the New Jersey Estate Tax has come to pass for estates of decedents dying on or after January 1st, 2018. For estates of those dying in 2017, a transitional rule applies: the estate tax affects only those whose gross estate, as determined in accordance with the provisions of the Internal Revenue Code in effect on January 1st, 2017, exceeds $2 million. In that event, the taxable estate is determined by subtracting from the federal gross estate all allowable federal deductions under the 2017 Code, including the state death tax deduction (see discussion below). To this figure the New Jersey tax rate found at N.J.S. 54:38-1 is applied. Finally, a tax credit of $99,600 is subtracted, so that the first $2 million of the taxable estate escapes the tax.
As suggested in the preceding paragraph, there is a “wrinkle” in the calculation of the taxable estate resulting from replacement of the federal state death tax credit with a state death tax deduction. Since the 2017 New Jersey Estate Tax computation incorporates the provisions of the Internal Revenue Code in effect on January 1st, 2017, which mandates the use of the deduction instead of the credit, a “circular” or “interrelated” computation must be employed to arrive at the tax. Fortunately, the Inheritance and Estate Tax Branch provides a calculator on its website which incorporates that computation, as well as the $99,600 tax credit. You will find the calculator, as well as the revised Estate Tax Return fill-in form at www.treasury/taxation/prntinh.shtml.
In addition, the “Simplified Tax System” (never simple in any event) has been eliminated, so all estates of 2017 decedents are obligated to employ the “706 Method” to compute the tax, which requires that a completed current Federal Estate Tax Return be filed, whether or not the estate is subject to Federal Estate Tax. This requirement supersedes the previous one that a completed 2001 Federal Estate Tax Return accompany the New Jersey Estate Tax Return, no matter the date of death. By way of illustration of the foregoing, a $3 million New Jersey taxable estate in 2017 would generate a New Jersey Estate Tax of $75,735.30. Compare this to the $182,000 tax that would have been due if the decedent had instead died in 2016. The difference is attributable to the $99,600 tax credit, as well as the circular computation discussed above.
Remember, as well, that only the estate tax has been repealed; the New Jersey Inheritance Tax is still alive and well, so inheritances by the decedent’s siblings, nieces and nephews and nonfamily members will still be taxed at rates ranging from 11-15%.