As the saying goes, “Nothing is safe but death and taxes.” In the context of estate planning, this reality drives the estate planner’s desire to minimize taxes on death as much as possible. In fact, the world of estate planning is consumed with tax minimization in all its forms. Lawyers and advisors get clients to jump through legal and financial shackles to avoid or delay payment of taxes, whether living, capital gains, gift, income, etc. It is imperative that clients know if their assets are being taxed on their death so that they can properly seek the advice of their realtor. This article provides a general overview of property taxes.
What is taxable?
Very generally, any property that a person owns upon his departure, taxable including bank account, cash, securities, real estate, cars, etc., is included in his gross estate. Contrary to popular belief, the death benefit of life insurance policies a person owns is taxable unless properly structured. Common property, including joint bank accounts, is 100% inclusive of the estate of the first joint property owner to die, except to the extent that the second joint owner can show that I contributed to the property. Business, corporate and LLC interests can also be included in the gross estate, as are the general appointment powers.
Deductions from Gross Estate:
In order to determine the taxable estate, we must reduce the gross fine with the applicable deductions. The IRS allows the following deduction from the gross fine, which reduces the gross fine:
1. Marriage Deduction: One of the primary deductions for married decedents is marriage deduction. Both jurisdictions allow for an unlimited marriage allowance, which means that assets that pass directly to a citizen’s spouse are not taxed upon the death of the first spouse. There are often very good financial, legal, and tax reasons for not leaving everything to the surviving spouse, as will be discussed in the upcoming article dealing with creditworthiness / bypass trusts.
2. Welfare deduction: If the decedent hands over property to a qualifying charity, it is deductible from the gross fine.
3. Mortgages and debt related to the properties.
4. Administrative expenses for the estate incl. Executioner / administrator, accounting and legal fees.
5. Losses during property management.
Not one, but two:
Both New York State and the federal government impose separate property taxes on decedents that go away with a set amount. The government advocates that death should be a taxable event because just about everything else you did in life was. New York State and the federal government tax goods at different levels and at different rates. However, Uncle Sam gives taxpayers a deduction for the amount they paid in state taxes.
Federal Estate Taxation:
The federal government is currently taxing homes valued at over $ 5.12 million at a rate of 35% in 2012. If Congress does not act, the federal property tax is expected to be 55% on gross assets over $ 1 million in 2013 and beyond.
New York State Estate Taxation:
New York State taxes the lives of New York residents if they are over $ 1,000,000. Non-residents pay the tax only if their property includes real estate or tangible personal property located in New York and is worth over $ 1 million. NY property tax rates range from 5.6% to 16% for the estate over $ 10 million and are expected to remain the same for the foreseeable future. New York requires property with a gross income of over $ 1,000,000 to file Form ET-706 along with a federal tax return, although it may not be required by the IRS (because the estate is below the federal filing threshold).
The above-mentioned tax thresholds assume that the decedent did not provide taxable gifts during his lifetime. A taxable gift is a gift given to a person over the annual gift tax exclusion amount, currently at $ 13,000. If taxable gifts were made, they would reduce property tax exemption amounts to the extent that no gift tax was paid by them.
It is possible to avoid swirling the property tax by (1) making full use of each spouse’s exemption from property tax (2) deferring tax until the death of the other spouse (3) and fully escaping taxes by donating properly in life and / or after death . Contact us at (347) ROMAN-85 to speak with a real estate planning attorney for an evaluation of your financial situation and to see what options can minimize or eliminate your potential property tax charge.