When I awoke on Wednesday morning it was with great consternation over the results of the election, both locally and nationally. (However, I am very relieved with the cessation of political ads that sandwiched the nightly news broadcast.) Now that the circus is over and the country must get down to business and begin dealing with the financial issues looming over the horizon, investors should be aware of 4 major tax changes coming in 2013.
First, the capital gains rate is going to increase. Under current law, gain from the sale of an asset held for investment for over one year is taxed at 15%. In 2013 this rate will increase to 20%. If you have an investment you are considering selling next year, you may want to move up your timetable to take advantage of the lower tax rate in 2012.
Second, the alternative minimum tax (AMT) threshold amount will fall to $45,000 per year. This means that if you make more than $45,000 per year you will have to calculate AMT. If you don’t understand AMT you are not alone. The best way to explain AMT is to view it as a separate tax system. It has its own set of rates and its own rules for deductions, which basically amounts to fewer deductions. Under AMT you are simply adding back your deductions and calculating the tax you would owe without your deductions. You then pay which ever is more.
Third, the 3.8% Medicare Surtax will kick in and apply to the lesser of your net investment income, or the amount of your modified gross adjusted income that is over $250k for a married couple, or $125k for a single person. In other words, if you sell an investment property and generate 350k in gain, your tax rate in 2013 will be 23.8%.
Fourth, the estate/gift tax exemption will drop from its current $5,000,000 per person to $1,000,000 and the tax rate will increase from 35% to 55%. If you or your parents have an estate that is valued over $2,000,000, you should consider making moves before the end of the year to reduce your future gift and estate tax by transferring assets to your family now while the exemption is at $5,000,000.
If you would like to set up a phone consultation to discuss any of the issues raised herein, call my office at 800.706.4741 to set up an appointment.