Real Estate Taxes By State
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Great Tips On Real Estate Taxes and Tax Lien Properties
The problem of estate shrinkage — The costs associated with estate settlement include funeral expenses, medical bills, legal fees, administration costs and other debts, as well as various federal or state taxes. These costs can drastically shrink the size of your estate. Because they must be paid before the estate can be fully settled, they can also delay distribution of your remaining assets to your heirs.
Another attractive technique, discounts on intra-family transfers of investment partnership interests, is also under Congressional scrutiny. The IRS has become increasingly hostile to such transfers and made some progress recently attacking these estate transfer vehicles under a step-transaction doctrine, whereby the government argues that funding a family partnership and the subsequent gifting of a limited interest to the next generation is a single transaction in substance, albeit not in form. As a result, valuation discounts are not allowed for lack of marketability or minority interest, without which the technique loses most, if not all. of its tax advantages.
Last week I explained in theory how you can legally avoid paying taxes on gifts and inheritances. Avoiding taxes on gifts and inheritances is based on cost-basis. To help you apply this to your situation I want to share some real-life examples of how my clients use these principles to legally avoid paying taxes on gifts and inheritances.
Additionally, the way in which the assets were left to an individual – by will, trust or beneficiary designation – will not affect whether or not they are taxable. Though most estate items are taxable, certain deductions may exist. Assets passed directly to the decedent’s spouse may qualify for a marital deduction. Items that are passed on to charities may also be deductible. Although certain conditions may apply, mortgages, debt and administrative costs associated with the estate may also be deductible.
The last thing you (or your heirs) need when you (or they) are grieving for the passing of a loved one is to worry about paying taxes. Luckily the government gives a nine-month leniency period after the death of the original estate owner before taxes must be paid. But be sure to contact an estate tax lawyer as soon as possible and let him or her deal with all of the things that you don’t want to have to think about.
In the twenty-first century, state governments depend more on income and sales taxes than on property taxes for funding. Local governments still rely on a small percentage of property taxes to generate revenue. The tax assessment is based on the value of the building and the value of the land it occupies. The assessor maintains accurate “tax maps” which identify individual properties to ensure they are not taxed more than once.
Some states such as Massachusetts will put an estate tax lien on property after the death of the owner, or anyone else who may have had a legal interest in the property (i.e. spouse). This usually occurs in the absence of probate and when the gross estate value does not exceed $1.5 million. Estates worth more than this limit will be subjected to federal estate tax filing.
Keep in mind, the states that currently have no state death tax could institute new taxes. Also, because of some quirks in the federal tax laws, starting in 2011 a significant number of states are scheduled to have their death taxes reinstated. Therefore, it is a good idea to stay abreast of the legislative environment in your state and at the federal level to determine whether changes are on the horizon. Many other states have their own estate and/or inheritance taxes that operate independently from the federal system. Most states use exemption amounts below the federal exemption amount which could result in state death taxes at the first death for a married couple.
When valuing intellectual property for estate tax purposes, the taxable amount is generally accepted to be the fair market value of the intellectual property on the date of the creator’s death. For example, the fair market value of copyrights will generally be considered their income producing potential, discounted for net present value. A common method for determining a copyright’s fair market value is to determine the likely annual earnings for the intellectual property for a future period, often between 5 and 7 years. A multiple, often between 3 and 7 is then applied to that number for the current valuation. Much of the valuation analysis is largely subjective, so determining the accepted method with the lowest valuation is usually the best choice, at least in terms of estate tax purposes.
About the Author
Estate Planning The State of Estate Tax in 2010. Visit IRS Tax Attorney. What It Is And How It Is Filed. Visit IRS Tax Attorneys.
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