The Law Office of Dallas Lain » Tax Law http://www.dallaslainlaw.com Wed, 13 Jan 2010 23:03:01 +0000 http://wordpress.org/?v=2.9.2 en hourly 1 Much Ado About the Federal Estate Tax http://www.dallaslainlaw.com/2010/01/07/50/ http://www.dallaslainlaw.com/2010/01/07/50/#comments Thu, 07 Jan 2010 12:25:34 +0000 Dallas Lain http://www.dallaslainlaw.com/?p=50 If you’ve been paying attention to anything Congress has been doing in the past month other than cutting deals with Sen. Ben Nelson (D-Neb.), you may have heard that our national representatives had too much on their plates to bother addressing legislation that affects the federal estate tax as of January 1, 2010. The most talked about aspect is the fact that for the year 2010, the federal estate tax is completely repealed.  However, the aspect of this legislation that will probably affect the most people is the fact that as of January 1, the tax rule which gives heirs a “step-up” basis in property they inherit is eliminated. What does this mean? Well, last year (in fact, just last month), if your father died and left you his house that he paid $10,000 for in 1955, but is worth $200,000 in 2009, you are considered to have been given an asset worth $200,000. If you then sell the house for $205,000, you must pay capital gains tax of only $5,000 on the sale. Not anymore though. With the change effective January 1, 2010, your basis in the house is what your father paid for it in 1955–$10,000. That means that if you sell the house for $205,000, you must pay capital gains tax on $195,000 instead of $5,000. And as you can probably guess, your total tax bill from this event is going to increase.

Here is a link to a good article at CBS Moneywatch, discussing what’s going on with the federal estate tax in 2010. At the end of the article, the author suggests giving your estate plan a check-up. Two of her suggestions that I heartily endorse are that you:

  • Make sure you have a durable power of attorney, and
  • Review beneficiary designation forms on your life insurance policies and retirement accounts.

You should do these two tasks regardless of whether the 2010 changes in tax law will affect you. Taking these two practical steps will protect you from headaches, regardless of the size of your estate.

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