Just under the wire, Congress has enacted new tax laws with respect to federal estate, gift and generation skipping taxes. Under this law, beginning in 2011 the estate and gift taxes are reunified and the exclusion/exemption amount is set at $5 million per person. The maximum rate is reduced to 35 percent. The generation-skipping transfer tax exemption is also raised to $5 million, with a maximum tax rate of 35 percent. The act includes a "repeal of the repeal" of the prior estate tax laws, so for decedents dying in 2010, rather than there being no Federal estate tax, the fiduciaries may elect whether to subject the the estate to the previously existing laws or the new ones about to take effect. These provisions sunset at the end of 2012.
For an interesting analysis of the new estate tax provisions, see this article in today's New York Times: http://www.nytimes.com/2010/12/18/your-money/taxes/18wealth.html?emc=tnt&tntemail1=y.
Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts
Saturday, December 18, 2010
Thursday, November 5, 2009
First Time Homebuyer Tax Credit Extended
Good news for first-time homebuyers! The United States Senate has voted to extend and expand the first-time homebuyer tax credits which have been in place as part of the economic stimulus package enacted earlier this year; the House is expected to follow suit later this week. The program was scheduled to expire at the end of November, but will now be extended through June 30, 2010. Under the new bill, Buyers who have owned their current homes at least five years will be eligible for tax credits of up to $6,500. First-time homebuyers, or anyone who hasn't owned a home in the last three years, will still get up to $8,000. To qualify, buyers have to sign a purchase and sale agreement by April 30, 2010, and close by June 30. The credit is available for the purchase of principal homes costing $800,000 or less; vacation and second homes are not eligible. There are income caps: the credit is phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
If you are considering the purchase of your first home, this is the time to do it! Lower prices and the tax credit make this a most favorable time to become a homeowner.
If you are considering the purchase of your first home, this is the time to do it! Lower prices and the tax credit make this a most favorable time to become a homeowner.
Monday, March 2, 2009
The State of Federal Estate Taxes
The next couple of years should be very interesting with respect to federal estate tax laws. Revisions to the federal estate tax law in 2004 increased the exemption amount (the maximum amount a decedent may leave without incurring any estate tax) on an incremental basis which culminates in a complete elimination of any federal estate tax for people who die in the year 2010. This means that regardless of the size of your estate, if you die in 2010 you will pay NO federal estate tax. The tricky thing is, however, than in 2011, the estate tax returns, and the exemption amount, currently at $3.5 million in 2009, will revert back to $1 million. For the last five years, estate planners have wondered what, if anything, congress will do about the quirks of this law. Given the state of the economy and the other issues facing congress, it may well be that nothing is done in the near term.
The law as it stands has a funny potential impact. When it was enacted in 2004, some nicknamed it the “Throw Mama From The Train” law, joking that children of wealthy older people would be motivated to “eliminate” their parents in 2010 in order to receive the maximum inheritance without tax. Conversely, according to an article in The Boston Globe on March 1, 2009, Jeffrey Frankel, who served on the Council of Economic Advisors under President Clinton , has pointed out that potential heirs of ailing wealthy parents may take whatever measures are necessary to keep their parents alive beyond December 31, 2009 in order to reap the benefits of the tax law repeal. He posits that intensive care units in hospitals will see a big spike in business as these children strive to keep their parents alive and breathing until 2010 arrives.
One has to wonder whether congress contemplated these odd, non-legal quirks of the 2004 revisions at the time they were enacted. It will be interesting to see if they take the time to straighten things out before the end of this year.
The law as it stands has a funny potential impact. When it was enacted in 2004, some nicknamed it the “Throw Mama From The Train” law, joking that children of wealthy older people would be motivated to “eliminate” their parents in 2010 in order to receive the maximum inheritance without tax. Conversely, according to an article in The Boston Globe on March 1, 2009, Jeffrey Frankel, who served on the Council of Economic Advisors under President Clinton , has pointed out that potential heirs of ailing wealthy parents may take whatever measures are necessary to keep their parents alive beyond December 31, 2009 in order to reap the benefits of the tax law repeal. He posits that intensive care units in hospitals will see a big spike in business as these children strive to keep their parents alive and breathing until 2010 arrives.
One has to wonder whether congress contemplated these odd, non-legal quirks of the 2004 revisions at the time they were enacted. It will be interesting to see if they take the time to straighten things out before the end of this year.
Friday, January 16, 2009
1031 (Tax-Free) Exchanges
If you are considering the sale of a highly appreciated investment property and intend to reinvest the proceeds in another investment property, a 1031 Exchange (Tax-Deferred Exchange) is a powerful tool for tax deferral.
A 1031 Exchange allows the taxpayer to sell income, investment or business property and replace it with like-kind replacement property without having to pay federal income taxes on the transaction. Taxes on the sale of the first property will be deferred, and the tax basis of the replacement property will be essentially the purchase price of the replacement property minus the gain which was deferred on the sale of the relinquished property as a result of the exchange. The gain on the sale of the relinquished property will be deferred until the taxpayer cashes out of his investment in the future.
In order to qualify for a 1031 Exchange, certain rules must be followed. The rules are, of course, complicated and must be carefully adhered to, but here is a brief summary of these rules:
1. The property being sold must be “Qualifying Property”, meaning property held for investment purposes or income-producing purposes. A primary residence cannot be used for a 1031 Exchange.
2. The replacement property must be “like-kind”, which in the case of real estate means another piece of real estate. Title must be taken in the same names as the relinquished property was titled.
3. Ideally, the replacement property should be of equal or greater value than the relinquished property. To the extent the replacement property has a lower value than the relinquished property, taxes will be owed.
4. In most cases, the services of a “qualified intermediary” are engaged. A qualified intermediary is a person who is not the taxpayer who enters into a written “exchange agreement” with the taxpayer and acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer. The qualified intermediary does not actually receive and transfer title, but facilitates the transactions in compliance with IRS regulations.
5. The exchange must be done within a particular time frame. It may be simultaneous, or the replacement property may be acquired before or after the sale of the relinquished property so long as IRS requirements are met.
6. If the relinquished property is sold first, a replacement property must be identified within 45 days from the date of the sold property, and closing must occur within 180 days from the date of sale. The intermediary will hold the proceeds of the sale until the subsequent closing occurs.
7. If the replacement property is acquired before the sale of the relinquished property, the property to be relinquished must be identified within 45 days after the acquisition, and sold within 180 days of the acquisition. The intermediary will hold the replacement property until the relinquished property is sold.
Of course, as with any transaction involving complicated tax regulations, the advice of a qualified professional should be sought. If you are selling an investment property and want to defer any taxes which would be due on the sale, consider a 1031 Exchange as an alternative.
A 1031 Exchange allows the taxpayer to sell income, investment or business property and replace it with like-kind replacement property without having to pay federal income taxes on the transaction. Taxes on the sale of the first property will be deferred, and the tax basis of the replacement property will be essentially the purchase price of the replacement property minus the gain which was deferred on the sale of the relinquished property as a result of the exchange. The gain on the sale of the relinquished property will be deferred until the taxpayer cashes out of his investment in the future.
In order to qualify for a 1031 Exchange, certain rules must be followed. The rules are, of course, complicated and must be carefully adhered to, but here is a brief summary of these rules:
1. The property being sold must be “Qualifying Property”, meaning property held for investment purposes or income-producing purposes. A primary residence cannot be used for a 1031 Exchange.
2. The replacement property must be “like-kind”, which in the case of real estate means another piece of real estate. Title must be taken in the same names as the relinquished property was titled.
3. Ideally, the replacement property should be of equal or greater value than the relinquished property. To the extent the replacement property has a lower value than the relinquished property, taxes will be owed.
4. In most cases, the services of a “qualified intermediary” are engaged. A qualified intermediary is a person who is not the taxpayer who enters into a written “exchange agreement” with the taxpayer and acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer. The qualified intermediary does not actually receive and transfer title, but facilitates the transactions in compliance with IRS regulations.
5. The exchange must be done within a particular time frame. It may be simultaneous, or the replacement property may be acquired before or after the sale of the relinquished property so long as IRS requirements are met.
6. If the relinquished property is sold first, a replacement property must be identified within 45 days from the date of the sold property, and closing must occur within 180 days from the date of sale. The intermediary will hold the proceeds of the sale until the subsequent closing occurs.
7. If the replacement property is acquired before the sale of the relinquished property, the property to be relinquished must be identified within 45 days after the acquisition, and sold within 180 days of the acquisition. The intermediary will hold the replacement property until the relinquished property is sold.
Of course, as with any transaction involving complicated tax regulations, the advice of a qualified professional should be sought. If you are selling an investment property and want to defer any taxes which would be due on the sale, consider a 1031 Exchange as an alternative.
Friday, November 21, 2008
Annual Gift Tax Exclusion to Increase in 2009
The IRS has announced that the annual gift tax exclusion will increase from $12,000 to $13,000 effective January 1, 2009. The gift tax exclusion is the amount the IRS allows a taxpayer to gift to another individual without reporting the gift or incurring any gift tax liability. The number of different individuals to whom gifts may be given is unlimited.
Lifetime gifting can be an effective tool for estate planning purposes. Individuals may elect to make gifts of the annual exclusion amount to one or more individuals per year as a way of reducing the value of their total taxable estate. For example, a married couple with three children could give away up to $78,000 to their children each year ($13,000 per child is 6x$13,000=$78,000), thereby substantially reducing their potential estate tax liability over a period of years.
Lifetime gifting should be considered in concert with other estate planning techniques in establishing the most advantageous plan for you and your heirs and beneficiaries.
Lifetime gifting can be an effective tool for estate planning purposes. Individuals may elect to make gifts of the annual exclusion amount to one or more individuals per year as a way of reducing the value of their total taxable estate. For example, a married couple with three children could give away up to $78,000 to their children each year ($13,000 per child is 6x$13,000=$78,000), thereby substantially reducing their potential estate tax liability over a period of years.
Lifetime gifting should be considered in concert with other estate planning techniques in establishing the most advantageous plan for you and your heirs and beneficiaries.
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