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2013 Federal Tax Law Changes

We are living in a new era of taxes. Or to paraphrase the ancient Chinese curse, we are living in interesting times.

On January 1, 2013, Congress passed and President Obama signed the American Taxpayer Relief Act of 2012 – not to be confused with the Kyrgyzstan Taxpayer Relief Act of 2012.

Estate and Gift Tax. The estate and gift tax exclusion is now $5,000,000, indexed each year for inflation, so for 2013 it’s $5,250,000. This means you and your spouse could die this year and exempt $10,500,000 from estate tax, or if you don’t want to die this year, you could gift $10,500,000, with no gift tax.

If you die with an estate greater than $5,250,000 (double that for couples) the amount above that figure will be taxed at 40%. Same applies if you want to gift more than $5,250,000.

The politicians say this new estate and gift tax exclusion is “permanent.”  And we believe them because taxes never go up, right?

Income Tax.

Here are the 2013 federal income tax brackets:

2013 Ordinary Tax Rates

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Capital Gains Tax. The long term capital gain rate increased from 15% to 20% for individuals, couples and estates and trusts in the top ordinary income rate.  For those not in the top rate, the long term capital gain rate remains at 15%.

Health Care and Education Reconciliation Act of 2010 (aka Obamacare). Although this law was passed in 2010, it is only now coming to a tax collector near you. A “Medicare surtax” of 3.8% will apply to net investment income, which includes:

  • interest, dividends, annuities, and rents
  • gains from sale of property

For individuals, the Medicare surtax applies to the lesser of net investment income or the excess of modified adjusted gross income (AGI) over $200,000 for those filing separately and $250,000 for married and filing jointly.

For estates and trusts, the Medicare surtax applies to the lesser of undistributed net investment income or the excess of AGI over the threshold for the top estate and trust income tax bracket, which for 2013 is $11,950.

For more on the Medicare surtax, click here for a good primer in Forbes by Lewis Saret.



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