What you should know about capital gains taxes!
Estate planning has changed a great deal over the past decade, as capital gains taxes have increased for some taxpayers and can greatly impact the process. Whenever you create or review your estate planning documents, you should keep capital gains taxes in mind.
Capital Gains Taxes
Capital gains taxes are applied to assets that have appreciated in value when they are sold, whether the asset is a house or a stock. When you die, the IRS allows you to transfer your appreciated assets to someone else and will forgive that capital gain up to a certain point. At the time of your passing, the price when you purchased it will no longer be considered the standard for what is a gain. Instead, it will be the value of the asset on the date of your death. If you purchased your house for $150,000 and it was worth $200,000 on the date of your death, the value would then be reset to $200,000 in the event of a sale.
How Does This Impact Your Estate Planning?
If you leave your assets behind to loved ones, they might encounter capital gains taxes if they sell the property or asset for more than its value. If your child chooses to sell the house that they inherited for $200,000 in the above example for $300,000, they would be required to pay long-term capital gains tax on the profit ($100,000).
Is Capital Gains Tax the Same Thing as Estate Tax?
No! While these two are both part of estate planning, an estate tax is a tax on the right to transfer your property to someone else after you die. Estates worth less than $11.59 million were exempt from this tax in 2020, and that figure is typically adjusted for inflation annually. States can have lower exemption thresholds than the IRS, so it's important to work with your estate planning attorney at Atkinson Law to ensure that you are not passing on a large tax liability.
Let Atkinson Law Take Care of You Like Family
At Atkinson Law, we are family. To learn more about how we can assist with your estate planning or concerns about capital gains taxes, contact us today by calling (410) 882-9595 or visiting our website.