The tax rules governing IRAs can be complicated. The tax rules governing IRAs that have a trust listed as a beneficiary can be even more complicated. The pamphlet, IRA Beneficiary Planning, published by RBC Wealth Management offers a good explanation of the tax strategy behind naming certain individuals or trusts as beneficiaries of IRAs.
Author: christopherfloss
Husband and lawyer who enjoys spending time with his wife and dining at Chicago's best restaurants.
IRS Notice 2015-57 Delays New Basis Reporting Requirement
Last Friday, the IRS released Notice 2015-57, which extends the due date for basis reporting statements required under the newly enacted Sec. 6035 of the Internal Revenue Code. Statements required under this section will be due by February 29, 2016 for estate tax returns filed after July 31, 2015. The timeframe contained in the statute becomes effective after February 29, 2016.
Under Sec. 6035, executors, administrators and/or other fiduciaries are required to file a statement with the IRS containing the basis of assets being transferred upon a decedent’s death. The information being reported on this statement needs to match the asset values being reported on the estate’s federal estate tax return. For further information regarding the new basis reporting provisions, as well as a summary of other recent changes to the Internal Revenue Code, please see the following link: Basis Reporting and Estate Tax Compliance — Now The Two Shall Meet.
Transferring Assets?
Recently, Ken Koger, a wealth management colleague, shared a concise summary of factors to consider when transferring assets in a variety of contexts–from basic estate planning to asset shelter planning.
Click here to read and learn more.
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Thanks to all who have been visiting Planning Your Future over the past week! Please continue to stay tuned for posts covering topics related to tax and estate planning.
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Will You Owe Income Tax When You Sell Your Home?
As a result of my practice areas covering tax related matters and real estate transactions, clients often ask me whether they will be in for a surprise when they file their tax return the year after they sell their home. As with most legal questions, the answer is “it depends.” I have found that most people automatically assume they will pay no income tax from the gain that may result from the sale of their home. However, that is not necessarily true. Here’s why.
The Internal Revenue Code (“Code”) provides the following with respect to excluding the gain from the sale of your principal residence:
Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.[1]
Here are the key components to this part of the Code section: (a) an understanding of what principal residence means; (b) the five-year period ending on the sale of the home; and (c) the amount of time you lived in the home during the five-year period.
The determination of “principal residence” is based on a facts and circumstances analysis that considers, for example, where you spend most of your time, your primary mailing address and the proximity of the home to your work location.[2]
If you considered the home you’re selling your principal residence for a total of two out of the last five years prior to the date of sale, then you meet what I call the “time” test.
Now, here’s the second part, which is what I call the “dollar amount” component. For single tax filers, the amount of gain that you’re allowed to exclude is $250,000.[3] For married filing jointly filers, the amount of gain doubles to $500,000.[4] In the event that you meet the “time” test, any gain above your applicable exclusion threshold needs to be reported as income on your tax return.
There are exceptions to this rule, such as for work-related moves, unforeseeable circumstances and health-related moves.[5] Some of these exceptions may allow for a total or partial exclusion of gain from the sale of your primary residence depending on other facts and circumstances.
In any event, above-mentioned factors should be evaluated when preparing your tax return the year following the sale of your primary residence.
[1] I.R.C. § 121(a).
[2] See IRS Pub. 523, Sale of Your Home, located at http://www.irs.gov/publications/p523/ar02.html#en_US_2014_publink10009003
[3] Id. at (b)(1).
[4] Id. at (b)(2).
[5] See IRS Pub. 523, Sale of Your Home, located at http://www.irs.gov/publications/p523/ar02.html#en_US_2014_publink10009003
Do you invest in Publicly Traded Partnerships?
The experts at PriceWaterhouseCoopers have done an excellent job of compiling an extensive list of publicly traded partnerships (“PTPs”). If you invest in PTPs and are in need of tax documents related to these investments, click here. The links on this site will enable you to download the IRS Form K-1 for each partnership. Obtaining this information prior to completing your filing will make your tax preparer’s job much easier!
An Illinois Will Could Be Presumptively Invalid When…
Gov. Bruce Rauner signed SB90 into law late last week. Proposed by Rep. Peter Breen, this new law provides a rebuttable presumption to the validity of wills executed under Illinois law when the testator is adjudicated disabled and either a plenary guardian has been appointed or a limited guardian has been appointed and the testator lacks testamentary capacity. This presumption may be overcome by presenting clear and convincing evidence that the testator had the requisite capacity to execute a will at the time of execution. Additionally, the new modifications provide that a court may determine that a ward has testamentary capacity upon presenting a verified petition or a physician’s report stating as such.
For further information, see Public Act 099-0302 and this link.
Trusts and Tax Planning
Trusts have become a very common element to modern estate planning. Clients are often confused as to the different types of trusts available for various planning needs. One major distinction among the types of trusts is whether it is revocable or irrevocable. This distinction may have significant income and gift tax consequences that need to be explored in the planning process.
See this brief article to begin exploring the income tax consequences of creating an irrevocable trust.
Getting Started!
Welcome to Planning Your Future! Hopefully you will find the information contained on this blog to be helpful as you consider the various components of tax and estate planning that are vital to your long-term financial planning needs. Check in frequently to get the latest updates to changes in tax law. Also, the information pertaining to estate planning should be useful in working with your estate planning counsel to address the specific needs of your estate plan.
To learn more about the originator of this blog, see Chris’ Biography. Also, feel free to connect with me on LinkedIn and follow me on Twitter!
Looking forward to helping you plan your future!
Planning Your Future 