• 15
  • February
    2011

In the last post there was some discussion about the uncertainties in tax laws as of 2013. Here are some changes to tax laws for the 2010 and 2011 tax years that will affect estate planning for many people with high net worth.

1. Itemized Deductions: Itemized deductions that have been subject to a phase-out have had the phase-out suspended through 2012. In other words, the deductions and what amounts are allowed will stay the same until 2013. This will include itemized deductions for charitable gifts from high-income taxpayers. The suspension amounts to roughly a 1% cut in marginal tax rates for high-income taxpayers.

2. Personal Exemptions: Personal exemptions were also being phased out for high-income taxpayers. Now this phase-out has been suspended as well, through 2012. High income in this case refers to married couples making $254,350 or more in 2011. Personal exemptions are still not available to taxpayers who are subject to the AMT (alternative minimum tax). This includes people with cash incomes from $200,000 to $1,000,000, and about 40% of the people who make more than a million dollars a year.

3. Retroactive 2010 Estate Taxes: People who died in 2010 were not subject to any estate tax. Now, though, they may be subject to a retroactive estate tax that was passed at the end of the year. Some estates may choose to be taxed because there is no tax applied to the first five million dollars, and property will be re-valued at market rates.

If estates choose to avoid the estate tax, there is only a $1.3 million step-up in basis, and gains above that will be subject to capital gains taxes when they are sold. This is the best option for very large estates that will save a lot of money on estate taxes. Capital gains taxes are due when the property is sold, but not when it is inherited.

4. Capital Gains Taxes: Through 2012 there will continue to be a fifteen percent tax on most long-term capital gains. Now, however, brokers must report both the purchase and the sales price, to cut down on people overstating their cost basis. In 2012, the rules expand to include mutual funds and dividend reinvestment plans, and in 2013 to include bonds and other debt instruments.

5. Florida Estate Taxes: There was some expectation that Florida state estate taxes would return for 2011, but that was not the case. They could return in 2013, though this is unlikely. Florida estate planning attorneys advise getting assistance with making plans that will carry out your wishes regardless of the future estate tax laws.

Source: New York Times "Certainty on Tax, but Just for Two Years" 2/9/2011