Capital Gains & Estate Taxes
CAPITAL GAINS EFFECTIVE JANUARY 2001 - SUBJECT TO CHANGE
Lower Capital Gains Rates
For individuals, the maximum tax rate on net capital gain from sales or 1031 exchanges occurring after May 6, 1997 is to be reduced to:
- A maximum tax rate of twenty (20%) percent for sales made after May 6, 1997, if the property had been held for more than 18 months at the time of sale. This twenty (20%) percent rate is also available for property sold after May 6, 1997, and before July 29, 1997, if the property had been held for more than 12 months (even if it had not been held for 18 months).
- A maximum tax rate of eighteen (18%) percent for sales of property acquired after December 31, 2000, that had been held for more than 5 years at the time of the sale.
- Twenty-five (25%) percent for real estate depreciation recapture treated as capital gain. The current twenty-eight (28%) maximum capital gain rate will continue to apply to:
- Sales of collectibles
- Sales before May 7, 1997
- Sales after July 28, 1997, of property held for more than one year but not more than 18 months
Gain from Sale of a Principal Residence
The Act allows taxpayers to exclude up to $250,000 of gain ($500,000 for couples) every two years. That means if you sell your home in two years and realize a gain of $250,000 for singles and $500,000 for couples, you can buy another apartment and do it all over again, every two years.
EFFECTIVE JANUARY, 2001 - SUBJECT TO CHANGE
Beginning in 1998, the unified estate and gift tax credit will increase annually until the maximum value of estate exempt from tax reaches $1 million in 2006. The current limit is $600,000.
Beginning in 1999, the $10,000 annual exclusion for gifts, the $750,000 ceiling on special use valuation, the $1 million generation-skipping transfer tax exemption, and the $1 million ceiling on the value of closely-held business eligible for the special low interest rate will be indexed annually to reflect inflation. The provisions apply to estates of taxpayers dying and to gifts made after December 31, 1997.
Beginning in 1998, executors may elect special estate tax treatment for qualified "family-owned business interests" if these interest comprise more than fifty (50%) percent of a decedent's estate and certain other requirements are met. Because the Act limits the combined value of this credit and the unified estate and gift tax credit to $1.3 million, the amount of this exclusion that will be available each year will decrease as the value of the unified credit increases during its phase-in period. In 1998, the provision will exclude up to $675,000 of value in qualified family-owned business interests from a decedent's taxable estate, (i.e., $1.3 million minus the $625,000 unified credit available in 1998).