HEALTH CARE REFORM SERIES – PART 2

Health Care Reform – Additional Tax on High Income Earners

 By: Jill F. Rosenfeld, Esq.

 Part 2 – New Tax on Investment Income.

 Beginning in 2013, a new 3.8% tax will be assessed on investment income earned by individuals who are assessed the 0.9% increase on wages discussed in Part 1 of this series (i.e,. thresholds of $250,000 for married filing jointly, $200,000 for singles and $125,000 for those married filing separately). Investment income includes interest (except municipal bond interest), dividends, rents, royalties, capital gains on sales of investment instruments and bonds, taxable portion of insurance annuity payouts (unless from company pension), passive income from rents and businesses the taxpayer does not actively participate in and taxable gain on the sale of a home over the $500,000 exclusion ($250,000 for single filers).

 For example: if a married couple has Adjusted Gross Income (AGI) in 2013 of $400,000 consisting of $200,000 in wages and $200,000 in investment income, they will owe an additional $5,700 in Medicare taxes ($400,000 AGI – $250,000 threshold = $150,000 x 3.8%).

Real Property Tax Appeals

Yes,  it is that time of the year again.  The filing deadline to challenge your 2010 commercial, investment, or personal real estate property tax assessment is April 1, 2010.  As you may recall from the Wells, Jaworski, & Liebman, LLP firm Newsletter,  our firm will provide a courtesy review of your tax valuation to determine if there are valid grounds to challenge that municipal real estate assessment.  The April 1st deadline is approaching fast so reach out to Jim Delia or Ken Porro, our office tax appeal specialists or any other attorney, sooner rather than later.

Estate Tax Changes

As many of you know, Congress did not act to change the Federal estate tax prior to 2010.  Therefore, the Federal estate tax, as of 1/1/10, was officially repealed.  If a client dies in 2010, absent any future changes in the law, there is no Federal estate tax, however, there is still a New Jersey estate tax imposed on assets valued over $675,000.  Also, with the estate tax repeal, there is no step-up in the income tax basis of estate assets at death (as there was in the past).  Therefore, clients will need to work hard to keep accurate records of the basis of each asset.  The basis is calculated as purchase price, plus any capital improvements or further investment.  This will result in capital gain being incurred at the sale of any one or more of the estate assets.

The 2010 repeal of the Federal estate tax will once again change, absent any future change in the tax laws, in 2011 when the Federal exemption amount will be $1,000,000.  This means that all assets valued over $1,000,000 will be subject to taxation at the Federal taxable rate.  This is not a good result for our clients, as each individual can pass only $1,000,000 tax free, whereas, they could have passed $3,500,000 tax free in 2009.

We believe that Congress will act soon to change the current law and freeze the Federal expemtion amount at approximately $3,000,000, adjusted for inflation.  The tax rate will be approximately 45%.  However, there is no guarantee.  It is very important for clients to review their planning to be sure they take advantage of every opportunity these changing times afford.

Stay tuned.  We will update you on any changes in the estate tax laws.

AnnMarie Palermo-Smits, Esq.