If the value of a person's gross estate in New York exceeds the federal estate tax exemption, it will be necessary to pay taxes on the estate. However, with the passage of the Tax Cuts and Jobs Act, the exemption increased to more than $11 million per person and twice that for couples. This means that most people will not have to be concerned about estate tax.
Savvy real estate investors in New York may prefer to explore potential tax saving options like combining cost segregation and Section 1031 exchanges. Due to provisions in the Tax Cut and Jobs Act, or TCJA, this particular strategy may be even more important for investors. The TCJA has modified rules that apply to Section 1031 exchanges and expanded applicable depreciation rules. These changes present new opportunities that some investors may not know are available.
New Yorkers who own portfolios of real estate holdings as investment properties may feel that they can't sell them because of the capital gains taxes that they might face. These portfolios can be optimized, and the people can use the 1031 exchange to sell their properties without paying capital gains taxes while moving into more passive management roles.
Many New York farms have been owned by the same family for generations. With property values rising, some owners might be looking to cash out but are concerned about the capital gains tax they might have to pay on the appreciation. There is a provision in the Internal Revenue Code, however, that might allow them to defer that tax at least temporarily if the sale transaction is properly structured.
While people in New York may be aware of the $5.45 million federal estate tax exemption, they also need to keep in mind that the state of New York has an estate tax as well. However, until 2004, it was possible to claim state tax against estate tax exemptions in a number of states. This meant that states got the benefit of estate tax payments without increasing a person's actual tax bill.
With so much to think about, small business owners may not make tax planning a priority. However, there are several good reasons to do so. First, it may be possible to reduce either business or personal income tax rates, which could reduce how much an individual pays out each year. Planning ahead may also make a business owner aware of tax credits and know ahead of time if the AMT will impact his or her tax return.
For years, New Yorkers used estate plans to minimize the possibility of federal estate taxes being assessed. The federal exemption amount in 2015 is $5.43 million, and it will increase for 2016, meaning that many people will not be subject to it anyway. This may mean that the focus should instead be turned towards minimizing capital gains taxes.
People in New York who are preparing an estate plan may wonder how to structure that plan to avoid estate tax. In many cases, doing so is not necessary. With the estate tax exemption set to rise to $5.45 million in 2016, many people's estates will fall under the maximum.
The IRS has announced its estate tax and gift exemption for 2016, which is $5.45 million per individual and $10.9 million for a married couple. This is up just a bit, based on inflation, from the 2015 exemption of $5.43 million applicable to residents of New York and across the country. The yearly gift exemption remains the same, at $14,000.
People living in New York may worry about their heirs having to pay estate taxes after they die. However, most people will never have to worry about federal estate taxes. They simply do not have enough money for this tax to become a factor in their estate planning, although the New York estate tax exemption is lower than the federal one.