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By John M. Bigler In the last several months important tax changes have taken place, both on the federal level and at the state level. These changes have a direct impact on seniors considering estate planning. On August, 1997, the Taxpayer Relief Act of 1997 was signed into law.
The tax is also reduced to 10 percent for those people who were formerly taxed at a 15 percent rate. Starting July 28, 1997, assets would have to be held for at least 18 months to qualify for the lower rate. If the property is held between one year and 18 months, then it would be subjected to the maximum 28 percent tax rate. Assets held for less than one year are treated as short-term capital gains and taxed at the same rate as ordinary income would be. The lower rate not only applies to profits by individuals but also to profits enjoyed by trusts and estates. Starting with the year 2000, the rate will be reduced from 20 percent to 18 percent and for lower income people the rate can be reduced to as low as 8 percent, if property would be held for at least 5 years. One important note is that collectibles, such as stamps, antiques, gems and coins will not have the new rate applied to their sale. These items will continue to be taxed for capital gains purposes at 28 percent. Take Heart, Homeowners The biggest benefit of the new law is for homeowners. Most homeowners on Long Island will no longer need to worry about their capital gains tax when they plan to sell their home. In the past, the law allowed a capital gain to be put off if a replacement home was bought or built within two years before or after the date of sale. In addition, seniors, or those over age 55 had a once-in-a-lifetime $125,000.00 capital gains exclusion. Both provisions of the law have been repealed. In their place, every individual has been given an exclusion of $250,000.00 or $500,000.00 per couple, on the sale of the principal residence. In order to qualify the seller must have owned and occupied the home for two of the preceding 5 years. Also, unlike the senior citizen exclusion that could be used once in one's lifetime, the new exclusion can be used any number of times, as long as the two-year requirement is satisfied in each case. The two-year requirement can be waived if the sale of the home is caused by a change of jobs or any other unforeseen circumstance. In such a situation the exclusion can be prorated for that period of the two years that has been satisfied. The two-year rule is reduced to one year if the move is caused by the transfer of the owner to a nursing home. Next month we will look at the change in Federal and New York's gift and estate taxes that will also be a benefit to seniors when doing estate planning. Reprinted with permission of the Suffolk Times © 1999 [ Contact Us ] [ Guestbook ] [ Email ]  The Law Offices of John M. Bigler, Attorney At Law 1421 Wantagh Avenue, Wantagh, New York 11793-2206 1-888-ELDER-LAW · 516-409-6565 · Fax: 516-409-6522 E-Mail: info@biglerlaw.com · Web Site: www.biglerlaw.com |
This law made important changes in capital gains tax rules which will have far-reaching effects for seniors when planning for the future. One very important change is in the capital gains rate. Capital gains is the tax someone pays on the difference between what a property is sold for and the original purchase price. The new maximum tax rate has now been dropped from 28 percent of the profit to 20 percent for sales on or after May 7, 1997. However, to qualify for the reduced rate it must be shown that the property has been held for at least one year.