1. The Basics of Basis. Cost basis is the original
acquisition value of an asset for tax purposes (usually the purchase
price or the inherited price), adjusted for stock splits, dividends and
return of capital distributions. This original value is used to
determine the capital gain - and becomes the difference between the
asset's cost basis and the current market value.
2. Striking while the Step-Up’s Hot. A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes. With a step-up
in basis, the value of the asset is determined to be the higher market
value of the asset at the time of transfer, not the value at which the
original party purchased the asset.
3. Transfer Up to Get Capital Gains Down.
Transferring an asset “upstream” to your parents or a trust for the
benefit of your parents will enable the asset to get a step–up in basis
upon the parents’ death.
4. Shifting Gears with the Shifting Landscape.
Assets previously gifted by clients directly to family members or in
trust for estate tax minimization purposes may have appreciated
significantly, causing unintended capital gains tax consequences for
their loved ones.
5. Speeding up the Process when You Want to Sell Now.
For older clients who wish to sell highly appreciated assets in the
near-term, several trust strategies can provide the benefit of a step-up
in basis upon the passing of the first spouse.
6. Tinkering with the Taxation of Capital Gains in a Trust. For
non-grantor trusts, long-term capital gains are not included in
distributable net income (DNI) and are taxed at the top marginal rate.
7. Spending Time to Save Money.
You may be able to exclude some or all of the gain that is taxed on the
sale of your principal residence. The tax code permits owners of homes
to exclude up to $250,000 of capital gain ($500,000 for a married
couple) if they have owned and lived in their home for at least two
years out of the five years before a sale.
8. The IRS’s Gift for Giving Back. When gifts of appreciated long-term assets are made to charity, no capital gains taxes are owed, because the securities are donated, not sold.
9. The 411 on a 1031 Exchange. A
1031 Exchange is a way to delay capital gains taxation by rolling the
sale proceeds of the original asset into a new investment in a like-kind
asset.
10. Consider the Tax-Free Possibilities. Two special savings accounts are given a pass by the IRS in terms of taxation.
“Most
estate planning attorneys have spent the first half of their careers
getting assets out of their clients’ estates, but now many will spend
the second half of their careers getting assets back into select
clients’ estates,” commented McManus.
McManus explained, “When assets are included in an estate, they are subject to estate tax, but
the assets enjoy a step-up in basis for income-tax purposes. Gains tax
can then be avoided. However, if there is no estate tax because the
gross estate assets are below the estate tax exemption amount, then it
may make sense to keep assets inside the estate.”
For
professional advice on navigating the current tax environment, call
McManus & Associates at 908-898-0100. For more information on this
highly acclaimed firm, go to www.mcmanuslegal.com.
About McManus & Associates
Nearly
25 years ago, McManus & Associates was founded in the Tri-State
Area to deliver the highest quality estate planning services that the
largest firms promise with the more intimate, personalized relationships
that a boutique firm can offer. Since that time, some of the most
prominent families in finance, media, academia and medicine — both
domestic and international — have relied on the firm to serve as their
advisor in wealth and family mission planning.
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