In 2017, the wealth tax cap was $5.49 million. In 2018, the limit doubled to $11.18 million and now stands at $11.7 million. Currently, this growth will expire in 2025, but with the changes in our government administration, values could drop to pre-2018 limits before by the end of the year.
You may need to make changes to your estate planning for 2021.
President Joe Biden has previously called for higher taxes for the wealthy, and with majority control in both the House and Senate, there is a possibility that the recommended tax changes will pass. Simply put, income tax rates will go up, and tax incentives will go down. But there is a silver lining. You can now review your tax planning and make changes to your property while the exemption rates are higher.
Some important factors to consider when considering your real estate budget planning for 2021 include:
Combined exemptions: For couples, the exemption is currently $ 11.7 million per person. This means you don't have to pay property tax until you hit the combined limit of $ 23.4 million.
Income Tax: Since the Biden tax plan also includes an increase in income tax for the rich, you can be affected in several ways. Any money earned in 2021 could be taxed at a higher rate, leaving you with fewer resources.
State Taxes: Some states currently levy their property taxes, in addition to the federal income taxes you have to pay on your assets.
Transferring to a spouse: in the event of one of the spouses' death, no tax is levied on the transfer of assets to the surviving spouse. If an asset is distributed to other relatives, the total transfer amount will come from your exemption of $ 11.7 million. Any remaining exemption amount is also transferred to the surviving spouse, thereby increasing the death tax limit.
What does this mean for you?
If the current exemption amounts are repealed, assets over $ 5 million per person or approximately $10 million per couple will be taxed. That leaves $ 11.4 million more of your assets than required by current law and is taxed at 40%.
What steps can you take now to protect your property?
Give gifts: You can give individual gifts of up to $ 15,000 (or $ 30,000 for couples) to each family member without paying taxes. Please note that larger donations may be subject to the IRS donation tax.
Make charitable donations: You can directly donate to charities or create a fund that transfers assets to charities after your death.
Reorganize your resources: talk to a trusted financial advisor, chartered accountant, or tax lawyer to see what types of options, like funds and life insurance, are available for income and life planning succession.
You can never completely avoid paying taxes, but with smart money management options, you can reduce your family's tax burden after death. Contact a tax professional, like PAT RASKOB, for assistance in tax planning for yourself or estate.
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Pat Raskob