THE EVERETT ADVOCATE – FRIDAY, NOVEMBER 12, 2021 Page 21 “YOUR FINANCIAL FOCUS” JOSEPH D. CATALDO MAKING GIFTS f you plan on making gifts of appreciated property such as stocks or real estate, keep in mind that the donee of your gift will accept the property with a cost basis equal to your cost basis. I The cost basis might be the purchase price of the original stock or real estate plus any improvements made to the real estate. If the real estate is rental real estate, the cost basis is reduced by depreciation taken over the years since first placed in service. Generally, it is best to gift assets that have not appreciated much, if at all. Cash is always a good asset to gift because there are no cost basis issues or date of death valuation issues. You must always consider whether or not you deem it best to make outright gifts to children or to make gifts to an irrevocable Trust for their benefit. An outright gift to a child that might have creditor issues or that might be involved in a divorce would not be such a good idea. Trusts have spendthrift provisions that would offer protection to a child in the event of a lawsuit or divorce. Currently, there is no gift tax in Massachusetts. The federal gift tax exemption is currently $11,700,000. Under the Biden Administration proposal, the gift tax exemption would be reduced to $1,000,000. The federal estate tax exemption is currently $11,700,000. The Biden Administration’s proposal is to reduce it to $6,000,000. The federal gift tax exemption and estate tax exemption are a unified exemption. You can either gift $11,700,000 federal gift tax free or die and bequeath $11,700,000 estate tax free, but you can’t do both. Although there is no gift tax in Massachusetts, taxable gifts (i.e. gifts in excess of $15,000 per donee) reduce the $1,000,000 threshold for being required to file a Massachusetts estate tax return. If you gave away $750,000 and were still left with $750,000 in assets at the time of your death, even though your estate ended up being less than $1,000,000, a Massachusetts estate tax return would still need to be filed. The threshold would have been lowered to $250,000 in estate assets. When you die with appreciated stock or real estate that is includible in your taxable estate (even though your estate might be less than $11,700,000 for federal purposes or $1,000,000 for Massachusetts purposes) your beneficiaries obtain the benefit of Internal Revenue Code Section 1014 and receives a new cost basis equal to the fair market value at the time of your death. The huge benefit to your beneficiaries is that when they sell the appreciated property shortly after you pass, there would be no capital gain or very little capital gain resulting in no capital gains tax or very little capital gains tax. Another benefit of Code FRANK’S Housepainting (781) 289-0698 • Exterior • Ceiling Dr. • Power Wash • Paper Removal • Carpentry FREE ESTIMATES — Fully Insured ~ HELP WANTED ~ Construction Help Wanted Seeking Full-Time Laborers Basic construction knowledge, MA Drivers License with clean driving record a must. EVERETT ALUMINUM Call Steve at: (617) 389-3839 “Proper prep makes all the difference” – F. Ferrera • Interior Section 1014 is that the beneficiary of the appreciated property receives preferential long-term capital gains tax treatment even if the beneficiary sold the appreciated property within one year from the date of death. Remember, short term capital gains are taxed at ordinary income tax rates federally and are taxed at the rate of 12% in Massachusetts. It is always important to select what assets to gift and how to make the actual gift. The tax implications can be significant.
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