What credits against the federal estate tax can I take?
In order to relieve double taxation, there are four credits that offset the federal estate tax liability:
(1) the unified estate and gift tax credit discussed in a previous paragraph;
(2) the state death tax (until 2005, and replaced with a deduction for state death taxes);
(3) the foreign death tax; and
(4) credit for tax on prior transfers.
You can take a credit for some or all of the state death taxes that were actually paid to a state or the District of Columbia on property included in the decedent's gross estate. The credit, however, is limited to an amount computed under the graduated rate table that uses the taxable estate minus $60,000. This could be a nice offset, since rates range from 0.8% to 16% of the taxable amount of the estate. However, the state death tax credit is phased out by 25% each year from 2002 to 2005, after which the credit is converted into an estate tax deduction.
A credit is available for foreign death taxes actually paid by the estate on property located in the foreign country that has been included in the gross estate of the decedent which then becomes to federal estate tax. The credit is limited to the foreign or the U.S. tax attributable to the property, whichever is less.
A credit against the estate tax is allowed for estate taxes paid on property transferred to you while you were living from someone who died within 10 years before or 2 years after your death.
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