RECENT TAX LAW CHANGES
AFFECT YEAR-END TAX PLANNING
AND THE SALE OF PROPERTY IN NEW YORK STATE BY
NON-RESIDENT INDIVIDUALS AND TRUSTS AND ESTATES
Under current federal estate and gift tax law, the federal estate and gift tax is scheduled to be phased out by 2009, only to be revived again in 2010 in the event Congress fails to enact a permanent repeal before then. Part of the implementation of the phase out includes incremental increases between now and 2009 of the amount of wealth that can be passed by an individual free of federal estate and gift tax (in tax parlance, the “credit equivalent”). The current federal credit equivalent is $1.0 million. Beginning on January 1, 2004, the credit equivalent will increase to $1.5 million.
While the federal credit equivalent will be increasing to $1.5 million on January 1, 2004, there will be no corresponding increase in the New York credit equivalent. Under New York estate and gift tax law, the credit equivalent will remain at $1.0 million for 2004. Thus, we will be returning to an era where the estates of many decedents will need to file a New York return when a federal return is not required. In these circumstances, it may be desirable to minimize the New York tax even when there is no federal benefit. Doing so may require a revision of the formula clause found in most wills for determining the amount which will be subject to the federal credit equivalent so that the estate of the first spouse to die need not pay any New York tax.
Another recent development bears comment. New York, among other states, has been derelict in integrating its estate tax with the planned phase out of the federal estate tax. This has resulted in several bizarre but true scenarios. The most outrageous involved a Massachusetts resident who had to pay New York State $200,000 of estate tax even though the value of the property that he owned in New York on the date of death was only worth $100,000. That’s not a typo! The New York tax was twice the value of the New York property. Another situation resulted in a mathematically impossible calculation which made it impossible to determine the respective Florida and New York estate taxes payable by a Florida decedent who owned property in New York. Scenarios such as these will continue until the New York State legislature adopts laws to integrate the New York estate tax with federal law.
In the areas of income taxation and real estate transactions, starting September 1, 2003, non-resident individuals and estates and trusts involved in a sale of real property in New York State must pay an estimated tax on the capital gains attributable to the sale before the deed can be recorded. This is applicable to both residential and commercial properties. The firm is already seeing the impact of this change in the tax code in several transactions.
Please consult with us if you have any questions on these or related matters so that we can plan ahead to avoid the obvious problems and adverse consequences of these changes in the law.
By: Elihu I. Rose, Esq., CPA and Jon A. Ward, Esq.
SAHN WARD PLLC’s “Legal Advisory” is published with the intent to inform readers of recent developments in the law. It is not intended, nor should it be used, as a substitute for legal advice or opinion which can be rendered only when related to specific fact situations.
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