A New Federal tax overhaul signed into law on Dec. 22, 2017, which touches every area of the economy, has some good news for those passing down or inheriting money, especially those with a lot of money. We all know taxes will go up for the rich, but there are certain areas that will help their benefactors out, if they pass away while this new tax law is on the books.

While the new tax law gives business owners and corporations the biggest tax cuts, there’s still a silver lining for some individuals, especially with regards to passing down inheritances, farms to other family members, and real estate investors and landlords.

How Does the New Tax Code Help With Inheritance?

How New Inheritance Tax Laws Will Save You Money | Pueblo Estate Planning Lawyers

How New Inheritance Tax Laws Will Save You Money | Pueblo Estate Planning Lawyers

The new inheritance tax code doubles the amount of money that is exempt from the federal estate tax. The old limit was $5.6 million.1 So, estates valued between $5.6 million and $11.2 million will now be exempt from paying taxes on the estates. Currently, there’s roughly only 5,000 estates per year estimated to be above the new Federal taxable limit. So, unless your last name is Trump, or you’re a super-wealthy person, you probably don’t have to worry about this affecting your estate plan.

Currently, there are only 15 states which have state estate tax codes, which include:

  • Connecticut
  • Delaware
  • District of Columbia
  • Iowa
  • Kentucky
  • Maryland
  • Massachusetts
  • Minnesota
  • Nebraska
  • New Jersey
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Tennessee
  • Washington

Many of those states tie their tax exemption limits to the Federal limit. So, if an estate is worth more than the $11.2 limit, then there’s a tax increase in the state as well. However, some states have fixed exemption limits, unless of course those state’s tax codes are updated by the legislatures.

How Will the New Tax Law Help Real Estate Investors and Landlords?

Limited liability corporations (LLC), which act as businesses that really pass through taxes to the owners, benefit from this new Federal tax code. S-corporations, sole proprietorships, and partnerships likewise benefit, because they are LLCs. Lots of real estate investors and landlords use LLCs as a way to protect their assets and privacy. Here are the big benefits of the new tax code for LLCs:2

  • LLCs now enjoy a 20 percent deduction for qualifying business income of pass-through companies.
  • This deduction applies to business profits, but not salaries or wages earned by the business owner.
  • Business owners get to deduct 20 percent of all pass-through income, so only 80 percent is actually taxed.
  • Businesses will now only be taxed 29.6 percent on income that used to be taxed at 37 percent, which is a 6 percent savings. That 6 percent savings amounts to a lot for real estate investors.
  • Individuals and LLCs may also deduct 20 percent of income that is received from qualified real-estate investment dividends.

How Does the New Tax Code Affect Farmers?

Here are some of the ways the new tax laws will positively impact farmers and their families:3

  • Farmers are exempt from inheritance tax. So, if a family farm is handed down to a younger generation to run, it won’t be penalized.
  • Farmers (as well as all U.S. businesses) will be able to deduct 100 percent of the cost of new equipment, but only in the year those items were purchased. So, farmers will be able to deduct those purchases all in one year, versus over several years as was allowed under the past tax code.
  • Lastly, the typical farming family of four earning $75,000 should also expect to see an income tax cut of more than $2,000 a piece, and in some cases cutting their tax bill in half, according to Trump’s claim.

How Often Should You Review Your Estate Plan?

Obviously, if you have recently gone through a divorce, lost a family member, or some other major life change, which would negatively impact a beneficiary in your will, you’ll want to get that matter attended to immediately. Otherwise, attorneys advise that you should review your estate plan once every three years. Think of your estate plan as a living document that changes over times based on life changes.

Contact the Pueblo Estate Planning Lawyers at Gradisar, Trechter, Ripperger & Roth

Do you need to create an estate plan or have one reviewed? If so, let the Pueblo Estate Planning Lawyers at Gradisar, Trechter, Ripperger & Roth sit down with you to discuss your family, business, and inheritance plans. To schedule an estate planning session with us, call (719) 556-8844 or email us using the contact form on this page.

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1“New Estate Tax Law Gives an Enormous Gift to Rich Families” published in CNN Money, Jan. 2018.

2“How the New U.S. Tax Law Impacts Property Owners” published in Mansion Global, Jan. 2018.

3“Trump Announces Tax and Regulation Cuts for US Farmers” published in AgriLand, Jan. 2018.

 

 

 

Categories: Business Continuity Planning, Estate Planning