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Increased Exemption Possible?
By Robert Giese
bob.giese@chsfl.org
Senate Finance Chair Max Baucus (D-MT) has been in intensive negotiations with Sen. Jon Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) over the estate tax. Sen. Kyl and Sen. Lincoln have proposed increasing the $3.5 million exemption that was applicable in 2009 to $5 million per person. In addition, the previous estate tax rate of 45% would be reduced to 35%.
Ongoing Negotiations
Negotiations have been ongoing for several weeks. On May 11, 2010, Sen. Kyl reported, “We have an agreement about how we would like to move forward and an agreement on many of the offsets.” He continued by observing that the offsets are still subject to discussion. It is estimated that the offsets will be from $60 billion to $80 billion.
An Option
While the details of the proposed compromise have not been released, several aides suggested that it may include an estate tax option in 2010. If the option is enacted, lawyers, financial and estate planners could choose either the repeal of estate tax and lose part of the step-up in basis under the 2010 rules or select the new compromise estate exemption and estate tax rate.
Assessment
It may occur that the tax extenders and the estate tax are combined in one legislative bill. Senate Budget Chair Kent Conrad (D-ND) observed this week, “You have got 13 legislative weeks. It seems to me it would be wise to put all the tax measures together.”
Conclusion
The House proposal for the offsets for the tax extenders (including the IRA charitable rollover) is to change the “carried interests” of hedge fund managers from being taxed at capital gain rates to ordinary rates. It now is possible that the change in the law will occur, but it may be phased in over a number of years.
Editor’s Note: The Senate continues to attempt to complete work on the estate tax and the tax extenders by early June. The estate planning community and the charitable community are both hopeful that the Senate will resolve the current great uncertainty in planning by passing compromise legislation in both areas.
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Filed under: Breaking News, Estate Planning, Taxation | Tagged: Blanche Lincoln, estate tax, estate tax exemption, Jon Kyl, Kent Conrad, Max Baucus, Robert Giese |
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Pre-Paid Estate Taxes
Bob, did you know that “Money”, a blog of the congressional newspaper “The Hill”, recently reported that lawmakers are considering whether to let taxpayers have the option of paying estate taxes in advance so they don’t owe that money when they die?
http://registeredrep.com/news/congress_mulls_prepaid_estate_tax_0514/?cid=nl_wm
What do you think about that?
Kirk
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Seven Charitable Extenders for 2010
The American Jobs and Closing Tax Loopholes Act of 2010 includes seven charitable extenders. After passage, these changes will be applicable from January 1, 2010 until December 31, 2010.
The seven charitable provisions include:
1. Conservation Gift Limits – Gifts of property for conservation purposes benefit from increased deduction limits. The normal 30% limit for appreciated property gifts is increased to 50% and the carry-forward limit is extended from five years to 15 years.
2. Food Inventory Gifts – An enhanced deduction for contributions of “apparently wholesome” food will be available for all donors. The deduction is the lesser of twice the basis or basis plus one-half of the appreciation.
3. Book Inventory Gifts – C Corporations may claim an enhanced deduction for book inventory gifts to public schools. K-12 schools qualify.
4. Computers and Software – Corporations may make gifts to elementary, secondary and post-secondary schools of computer equipment. These contributions will qualify for the enhanced deduction.
5. IRA Charitable Rollover – Each IRA owner may make a transfer of up to $100,000 per year to a qualified charity. The IRA charitable rollovers are tax-free and not included in adjusted gross income.
6. Rents from Subsidiary Charities – Rents, royalties and annuities may be distributed from a subsidiary charity to a parent. Payments at fair market value will not be subject to the unrelated business taxable income rules.
7. S Corporation Appreciated Gifts – An S corporation may give appreciated stock or land to charity. Only the basis to the S corporation will be used to reduce the shareholder basis, even though the full fair market value deduction is claimed by the shareholder.
Source: Robert Giese
bob.giese@chsfl.org
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Bob and Kirk,
Senate Majority Leader Harry Reid (D-NV) just deferred a vote on the “tax extenders” bill until the Senate returns from its Memorial Day recess on June 7, 2010.
He indicated that there is continuing debate about the tax provisions in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213).
Sam
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Sen. Reid Supports Tax Extenders
Senate Majority Leader Harry Reid (D-NV) is negotiating with other Washington leaders to extend the payroll tax cut. Under the Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765), the employee contribution for January and February of 2012 was reduced 2% from 6.2% to 4.2%. The White House, Reid and other leaders are proposing to extend this tax reduction for all of 2012.
This week in Washington, an aide to Sen. Reid indicated that he favors including the tax extenders in the payroll tax cut bill. The tax extenders are 40 provisions have been passed each year for the past two decades. A provision of particular importance to philanthropy is the tax extender that permits qualified gifts from an IRA directly to a charity. These gifts are permitted for IRA owners over age 70½ and have a limit of $100,000 per year. The previous IRA rollover provision lapsed on December 31, 2011, so a new law must be passed for the IRA charitable rollover to be effective in 2012.
The key question for Senate and House leaders is the method of paying for the bill. The 10 months of additional payroll tax extension have an estimated cost of $99.5 billion. A one year extension of the tax extenders is estimated by the Joint Committee on Taxation to cost $36.9 billion.
Editor’s Note: While there certainly will be debate over the best methods for paying for the extension, there does appear to be a general agreement that the tax extenders and the IRA rollover should be passed for 2012. However, given the uncertainties of an election year, it is possible that passage may be after the election. If this does occur, the IRA rollover will be retroactive to January 1, 2012. Donors with potential interest in using the IRA charitable rollover should stay tuned for future developments.
Source: Children’s Home Society of Florida Foundation
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