There are so many taxes out there it is hard to keep track of all of them. Without question, you should understand the taxes that can be applicable when you are planning your estate. One tax that can come into play is the capital gains tax, and we will look at the details in this post.
Realizing a Gain
When you own assets that have appreciated, the capital gains tax is looming. The gains are taxable, but you do not have to pay the capital gains tax until you realize a gain. You realize a gain when you liquidate an asset and assume direct possession of the appreciation.
The capital gains rate varies depending on a number of different factors. First, there is the matter of long-term gains versus short-term gains.
A short-term gain is realized within a year after you acquired the asset. These gains are taxed at your regular income tax rate.
If you realize to gain more than a year after you acquire the asset, you are realizing a long-term capital gain. These gains are taxed at a different rate.
The long-term capital gains rate is dependent upon your income level. At the present time, the maximum long-term capital gains rate is 20 percent. If you earn more than $406,750 as a single filer, you would be subject to this top rate. For married joint filers, the figure is $457,600. These are the 2014 figures, but they could be adjusted for 2015.
Technically speaking, the maximum long-term capital gains rate is 20 percent, but there is also a Medicare surtax. The rate of this tax is 3.8 percent, and it is applicable if you are a single filer with a modified adjusted gross income that exceeds $200,000. When you factor in this surtax, in essence, the top rate is 23.8 percent.
People in the middle pay a 15% rate, and those who are in the 10 percent bracket or the 15 percent bracket are exempt from the tax.
Step-Up in Basis
If you inherit appreciated assets, you do not have to worry about the capital gains tax at first, because you get a step-up in basis. For capital gains purposes, the value of the inherited asset is equal to its value at the time of inheritance.
You would be responsible for future gains if you hold on to the assets and they continue to appreciate.
The capital gains tax is just one tax to be aware of when you are planning your estate. If you would like to have all of your tax questions answered, our firm can help.
We offer free consultations, and we would be glad to provide you with one-on one attention. To set up an appointment, send us a brief message through this page: Indianapolis IN Estate Planning Attorneys.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.