New York State Tax Department Clarifies Changes to State Estate Tax

Published August 31, 2015

As of April 1, 2014, the New York State estate tax exemption will increase each year until 2019, when it will match the federal exemption amount. That is good news for wealthy New Yorkers planning their estates. However, the estate tax reform was subject to legislative amendments in 2015, which have now been clarified in a Technical Memorandum issued by the New York State Department of Taxation and Finance. The amendments make clear the Basic Estate Tax Exclusion Amounts that apply for the following time periods:

From April 1, 2014 to March 31, 2015, the basic exclusion amount is $2,062,500.
From April 1, 2015 to March 31, 2016, the basic exclusion amount is $3,125,000.
From April 1, 2016 to March 31, 2017, the basic exclusion amount is $4,187,500.
From April 1, 2017 to December 31, 2018, the basic exclusion amount is $5,250,000.

From January 1, 2019 onward, the basic exclusion amount will match the Federal exemption, which is $5 million, indexed for inflation beginning in 2010. The exclusion amounts apply to New York residents and to non-residents who own real property in New York State. However, when a non-resident owns real property in New York that is less than the exclusion amount, no New York estate tax will be imposed, even if the person’s other assets would put their total estate over the exclusion amount.

Despite the increase in the exclusion amount, and New York’s relatively low estate tax rate (5 to 16 percent compared to the federal rate of 40 percent), wealthy New Yorkers must still beware of the state estate tax “cliff,” which can produce harsh results when an estate is just over the exclusion amount. That is because New York’s estate tax is calculated differently than that of other states and of the federal government. In New York, when the value of an estate is over the exclusion amount, the entire estate is taxed, instead of taxing only the amount that exceeds the exemption amount.

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