Taxation Law (TA)

 View Only

Federal Estate Tax Law Update

By Lisa Rico posted Sat April 20,2013 07:09 PM

  

On January 2, 2013 President Obama  signed into law the American Taxpayer Relief Act of 2012 (the “Act”).  The Act has brought some welcome permanency to estate planning.  Under the Act, the 2012 federal estate, gift, and generation-skipping transfer tax laws remain in effect.  Specifically,

  • the federal estate and lifetime gift tax applicable exclusion amount and the generation-skipping transfer tax exemption amount — the amounts a taxpayer may transfer without incurring estate, gift or generation-skipping taxes — is $5,000,000, adjusted for inflation after 2011. The 2013 amount is set at $5,250,000;
  • the top estate, gift, and generation-skipping transfer tax rate is increased from 35% (the top rate under 2012 law) to 40%; and
  • “portability” has been made permanent. Portability is the ability of the personal representative of a first spouse to die’s estate to irrevocably elect to transfer the deceased spouse’s remaining unused federal estate and gift tax applicable exclusion amount to the surviving spouse.

The Act also brought some permanency in the income tax area, by making permanent the 2001 and 2003 Bush-era income tax tates for the overwhelming majority of taxpayers.  The Act did raise rates for certain high income taxpayers, including raising:

  • the top income tax rate for individuals to 39.6% in excess of taxable income threshold amounts, which for 2013 are $450,000 for married taxpayers filing joint returns, $425,000 for heads of household, $400,000 for unmarried taxpayers, and $225,000 for married taxpayers filing separate returns. The threshold amounts will be indexed for inflation in tax years beginning after 2013; and
  • long-term capital gains and qualified dividends tax rates from 15% to 20% for taxpayers in the 39.6% income tax bracket for both regular and alternative minimum tax purposes.

In addition, the Act restored through 2013 the ability of taxpayers age 701/2 or older to make tax-free distributions to charities from their traditional individual retirement accounts (IRAs) and Roth IRAs up to a total of $100,000 per taxpayer, per taxable year. So, rather than adding your required distributions to your taxable income, you can donate all or a portion of those distributions to charity, up to $100,000 per year. 

 Although not part of the Act, beginning January 1, 2013, net investment income is subject to the new 3.8% Medicare tax if adjusted gross income exceeds $250,000 for taxpayers filing joint returns and $200,000 for unmarried taxpayers.

For 2013 gifting purposes, the federal annual exclusion gift amount has increased to $14,000.

Finally, the Act does not affect state estate tax laws.  Massachusetts estate tax exemption amounts remains at $1,000,000.

0 comments
73 views

Permalink