THE NEW 5 MILLION DOLLAR ESTATE TAX RULES
The passage of the new 5 million dollar estate tax limits brings up some really interesting opportunities that many
people should be aware of. You may have noticed there hasn't been much discussion about this elsewhere but that's
probably because they are not recognizing the entire scope of the law as it currently stands.
It has always been true that when you transfer assets to someone else, usually the next generation, you are also
giving them your cost basis. What that means is that if you bought a piece of property 40 years ago for $70,000 and
now it is worth $200,00, and you gave it to your kids, if they sell it they have your old cost basis of $70,000 and
therefore have to pay capital gains tax on the $130,000 of profit.
The IRS is saying that this next part has always been true, but it's never come out till this new limit was established.
The government has always made a big deal about the $13,000 that can be given from one person to another without
any tax consequences. But it only started to come out now with the new limit that there is another way to pass on
assets now and let the receivers also get "step up in basis". Meaning now when you give them that $200,000 piece of
property, their basis will be $200,000. Therefore they could sell it now and pocket the entire $200,000 and need one
of you paid the capital gains tax. How you make this work is you do a form 709, Gift and Estate Tax return. By filling
out that form you are essentially paying the taxes with your estate tax credit. Now that the taxes have been paid on
that money (with a credit, not cash), the receiver is dealing with after tax dollars and therefore no further taxes are
due or payable. So anyone who is pretty sure they will be worth less than 5 million dollars when they die can now use
this loophole to pass on property to their heirs now and neither party has to pay the huge tax bill.
POWER OF ATTORNEY AND THE IRS
We ran into this problem last year and never really saw it coming. If a person is alive but incompetent no one can
speak on behalf of that person with the IRS even if they do have a completely legal General Power of Attorney. For
some unknown reason the IRS does not have to recognize that document like every other business and governmental
agency in the country. So the way to fix this problem is to make sure that you have a form 2848 completely filled out
and either on file with the IRS or at least in the file with your legal documents in case it is ever needed. You don't
need a lawyer or even me or your accountant for this. Just go to www.irs.gov and download the form, fill it out and file
it for further use.
|NEW TAX TOPICS INCLUDING ESTATE TAX RULES AND POWER OF ATTORNEY