Monday, January 25, 2010

New Haiti Tax Deduction Legislation

On January 20, 2010, the House passed H.R. 4462. This bill permits Haiti relief gifts from January 12 to February 28 of 2010 to be deducted on 2009 tax returns. Following the House passage on the unanimous voice vote, the Senate acted quickly on January 21, 2010 to pass the bill. President Obama is expected to sign the bill within the next week.

Senate Finance Chair Max Baucus (D-MT) stated, "Today, Congress unanimously agreed to extend the tax deadline for charitable giving so Americans can continue to help the relief efforts in Haiti." The Ranking Republican on the Senate Finance Committee, Charles Grassley (R-IA), continued, "Americans give generously to disaster relief and I hope this extension encourages them to give even more. I also hope Americans will make sure the charities they choose are above board. People should be careful to give only to groups they recognize and trust.

"The bill permits cash gifts (not property gifts) from January 12 to February 28 of 2010 to be deducted on the 2009 tax returns. The gifts must be "for the relief of victims in areas affected by the earthquake in Haiti on January 12, 2010." All qualified charities may receive the gifts, so long as they use the funds appropriately for Haiti relief. Because many individuals have made gifts using their telephone, a deduction is also permitted for cash gifts by phone during the above dates. For a telephone gift, donors should retain the telephone bill with the name of the charity, the date of the gift and the amount of the contribution.

Wednesday, January 6, 2010

Welcome to 2010!

The start of a new year brings with it some very interesting tax developments. Congress adjourned and promised to come back and fix the estate and generation skipping tax this year. So right now if anyone wants to die and pass thier estate along without the impositon of any estate tax at the federal level, the opportunity is yours! Tough advice to give to a client!

However, the generation skipping tax ("GST") is also no more. Anyone contemplating gifts in excess of the current $1,000,000 lifetime gift tax exemption will not have to pay GST tax of 45% to gifts to grandchildren. The gift tax rate was reduced from 45% to 35%. While Congress has talked about making any new taxes retroactive to January 1, 2010, there is some thought that that may be unable to do so based on prior case law. So there exists a window of opportunity for those willing to play the game.

The bad news is that Congress had to come up with some way to make up the revenue loss. So they invented something for this year called "modified carryover basis". This means that the executor of a decedent's estate can elect to "step up" the first $1.3 million of assets to the fair market value of a deceased person's estate as of the date of death. But anything else will be subject to "carryover basis", i.e. the basis in the hands of the heirs will be the same as the lifetime basis of the person who died owning the asset....unless, the decedent was married! A spouse is entitled to an additional $3M dollars of step up in basis election. The result is to increase the income tax on the sale of inherited assets at the time of a subsequent sale. The accounting profession will love this new computation. Congress tried this back in 1976. After two years when they admitted that it was so complicated that nobody could compy with it, Congress repealed it. Now this new system is back again in 2010. I wonder how long it will take Congress to remember that this was a mistake the first time and it is not any better the 2nd time around.

Conclusion: This is the year that everyone should review their estate planning documents to see what the current repeal of the Estate tax does to one's estate planning. There are still so many unknowns that are difficult to predict; but, high net worth estates may be able to do some things right now that will not be available later.