Below we are going to discuss two tax credits that are available against the federal estate tax.
Foreign Death Taxes
A foreign death tax credit is provided for United States citizens and residents. The credit applies to property that is subject to both federal and foreign death taxes in order to prevent double taxation. Taxes paid to possessions of the United States are regarded as foreign death taxes according to Code Section 2014.
The foreign estate tax credit allowed against the estate tax is, however, limited by apportionment. Only taxes attributable to property taxes in both countries may be allowed as a credit. In addition, the credit cannot exceed the portion of United States taxes attributed to such property.
Death Taxes on Prior Transfers
A credit is allowed against the estate tax for all or a part of the estate tax paid with respect to the transfer of property to the present decedent by a prior decedent who died within 10 years before, or within two years after, the present decedent’s death.
This credit can never be larger than it would be if the present decedent had not received the property. Since the purpose of this provision is to prevent the diminution of an estate by the imposition of successive taxes on the same property within a brief period, no credit is available for any gift tax that may have been paid with respect to the transfer of property to decedent.