DC Estate Tax Exemption to Increase to $2 Million in 2016, $5 Million+ as Revenue Permits

flag-dcDC Council Raises Estate Tax Exemption to $2 Million in 2016

$5 Million+ in 2016 or Later as Revenue Permits

On Tuesday, June 24, the DC Council approved sweeping tax cuts, including changes to the District’s estate tax. The tax law changes were approved overwhelmingly on the Council’s “Second Reading” of the tax bill. The Council previously approved an earlier version in May. The law, as passed by the DC Council, underwent some changes between the First Reading and the Second Reading.

Currently, estates in the District with a taxable value above $1 million are subject to DC estate tax.

As ultimately passed by the Council, the estate tax exemption amount is increased from $1 million to $2 million in 2016. (Note: In one section of the bill as passed, before technical corrections, it seems as if this change is conditioned on available revenue and that the change may take effect as soon as 2016 but it may be later. In another section it is implied that this change may take effect automatically in 2016).

In 2016 or later years, the amount that may pass DC estate tax-free will eventually be increased to be the same as the federal amount (now $5.34 million, indexed for inflation annually). This increase of the estate tax exemption to the federal amount, however, will not take effect until additional revenue becomes available and only after such revenue is enough to pay for at least twelve other tax cuts given higher priority. Thus, depending upon the District’s revenue receipts it may take effect as soon as 2016 or it could be several or more years later before the DC exemption is above $5 million and indexed for inflation.

What’s Next

The Mayor now has 10 days to sign the bill, choose not take any action, or veto the bill. Upon signature or, if the Mayor takes no action, after 10 days the bill becomes an act. Since the bill passed unanimously there are more than enough votes to overcome a veto.

Afterwards, Congress will have 30 days to review the act. If Congress takes no action, the act becomes a law. Congress may disprove of the act by passing a joint resolution, which would later have to be approved by the President.

The bill is expected to become law but is subject to technical corrections.

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