Changes in the Estate Tax Exemption

It might make sense to give to grandmother rather than the kids.

The Estate Tax exemption amount has effectively doubled from approximately $12.5 million per married couple to approximately $25 million per married couple. Over the years plans have been put in place to move assets from the “parents” to the “children” to minimize future estate tax on growth assets.

Now there may be an opportunity to transfer assets to parents – who may likely be the first to die – to get a tax free “stepped up basis”. The tax impact will be noticed when the beneficiaries dispose of the the appreciated assets – any gain is potentially reduced by the stepped up amount. Taking into account future growth, this strategy would likely be most effective for joint estates in the $8 million to $18 million estate range.

Expensing Changes

Like-Kind exchanges are limited to Qualifying Real Property. Personal property no longer qualifies for like-kind exchange treatment. 

Under pre-Tax Cuts and Jobs Act law, depreciable tangible personal property could have been exchanged for like-kind property if the relinquished property and replacement property were of a like class if the properties were either within the same general asset class or within the same product class. In light of the increased and expanded expensing under the cost recovery system (ie, depreciation expense) and Section 179 expense for tangible personal property and certain building improvements, Congress believed that the like-kind exchange rules under Code Section 1031 should be limited to exchanges of qualifying real property. Thus, exchanges of machinery, equipment, vehicles, patents and other intellectual property, artwork, collectibles, and other intangible business assets do not qualify for nonrecognition of gain or loss as like-kind exchange.

Interest Expense Changes

New rules may change the best method for structuring business debt

Every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjusted taxable income. Any interest expense limited under this rule can be carried forward and used at a later date. This may cause certain businesses to evaluate how such business debts are structured.

Click to go to the Article in Druid City Living

Ray Dyer Jr., CPA, writes, speaks and teaches on various subjects in addition to his private practice. He is a native of Tuscaloosa and attended the University of Alabama where her received his BS in Accounting and Master of Tax Accounting degrees. His first 10 years of college were spent in Dallas, TX with international accounting firms and as a Controller/Treasurer a national real estate syndication firm.

His emphasis is working with businesses that are going through changes such as entity selection, partnership formation or dissolution, syndication or equity raising.

Covenant Consulting Group provides Accounting, Assurance, Auditing, Valuation, Business Advisory, and Litigation Support services to businesses and families. For more information, please go to www.covenantcpa.com