Dear Michael: It appears that we've passed the 'fiscal cliff' with relatively little damage to our tax situation – especially in the case of estate taxes. What is your summation of the new tax bill passed by Congress? – Survived the Fall

Dear Survived: The really good news about the bill is that the estate tax was kept at the current five million one hundred and twenty thousand per person – double that for married people – and that it was made 'permanent' by this tax law. Also made permanent was the 'portability of the Unified Credit between spouses – meaning if one spouse dies without using their credit, their surviving spouse can use the unused portion on their estate at the time of their death.

However, in order to qualify for this unused Credit from a decedent spouse, the personal representative of the estate must file with IRS regarding the need to keep this credit for the surviving spouse at the time of the filing of the estate tax return or within nine months of the date of the death of the decedent spouse. Many non-professional Personal Representatives are not going to know to file for this with IRS upon the death of the first decedent spouse.

The easiest thing to do is for people to 'automatically' file for this unused Credit upon the death of the first spouse (parent) so there won't be anything left on the table in the event you need this Credit someday.

This should give people some peace of mind regarding their estate tax planning – although it would be nice if Congress gave everyone a sixty day 'tax holiday' to allow them to undo all of the panic gifting they did prior to the end of the year when they thought one million dollars per person was on the horizon.

One has to remember there are all kinds of items in this bill yet to be resolved, however, and 'permanent' may not be as long as everyone believes it to be.

The bad news on the estate tax front is that estate taxes over and above this amount will now be taxed at forty percent rather than the thirty-five percent they were at prior to 2013.

There's also the fact capital gains will stay the same for many people – those that earn less than $400,000 as an individual or $450,000 if they are married. For those over this amount, the capital gains rate will rise from 15% to 20%.

This would include people who have one time sale of properties as well as those who regularly earn more than $400,000 or $450,000. Any income – including capital gains income – putting you over this amount will result in higher capital gains.

Don't forget that you also will have to pay the additional 3.8% for unearned income (capital gains, rents, etc.) over and above $250,000. As such, some people will be passing through the capital gains taxation with a portion at 15%, a portion at 18.8%, and the remainder over $400-450,000 at 23.8%! That's a pretty healthy increase from a top of 15% in 2012.

The other items are the cessation of the 2% 'Social Security tax holiday' for everyone – meaning both the employee and the employer will once again pay 6.2% – or 12.4% total if you're self-employed. This was never intended to be a long-term tax break and was merely another attempt to bolster the economy by leaving more money in people's paychecks. However, in light of the seriousness of Social Security's long-term viability, perhaps this is one 'holiday' we'd prefer to pass by rather than pay the consequences of having liquidity problems with Social Security in the future.

Last but not least is that people earning more than $400,000 as a single person or $450,000 as a married couple will now return to the 39.6% tax rate on income over and above this amount of income.

More egregious is the new 'phase-out' rules whereby single people earning more than $250,000 and married people earning more than $300,000 will see their deductions being phased out. Such deductions would be home loan interest, education deductions, state income taxes paid as well as property taxes and charitable deductions. The deductions are reduced by 3% of the amount your AGI exceeds the threshold amounts but no more than 80% of these deductions.

Still on the table are whether or not Congress is going to tax the inside cash value buildup of life insurance policies, annuities, retirement plans, IRA's, etc. including whether death benefits on life insurance should be taxed. These are all still on the table of possible 'cuts' by Congress as they meet over the next few months to iron out the tax cuts necessary to make this whole tax bill float. These items have been the backbone of American savings for decades, but they are being scrutinized by Congress for possible revenue.

Also, a 'new' Congress will be seated in 2013 and their agenda may be different from the 2012 Congress's agenda, so nothing is set in stone at this point in time.

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