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In part one of this series, I outlined the changes that could affect individuals on January 1, 2013, if the Bush tax cuts are allowed to expire. In part two, I’ll talk about the effect on gifts, estates, and small businesses.
Estates and gifts
One of the biggest changes that may impact people in big cities is the return of the death tax. Folks who were able to buy homes years ago in large urban areas like New York, Chicago, or Los Angeles for a fraction of today’s fair market value don’t think of themselves as millionaires. After all, if they sell their homes, where will they live in comparable comfort?
However, even with the decline in residential real estate values, their homes may still be worth far more than what they paid for them. As a result, these estates containing these homes can be worth in excess of $1 million. And effective January 1, 2013, the gift and estate tax limits will drop from $5 million each to $1 million. In addition, the top tax rate on estates will jump from 35 percent to 55 percent. Ouch!
Incidentally, the annual allowance for gift giving without filing a gift tax return will be $14,000 in 2013, up from $13,000 in 2012. That includes all gifts, not just monetary gifts.
Will your business be affected by these changes? If you have financing, it most likely will.
My good friends at CCH, a Wolters Kluwer company, are optimistic. They believe that Congress will take steps to extend many of the Bush-era tax breaks before the end of the year. What do you think?
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
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