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What is the Real Tax that Creates Worry?

While the federal estate tax receives the news coverage, the bigger concern is the federal capital gains tax and the impact on estates.

Despite speeches by politicians, the biggest concern for estates in the U.S. is not the federal estate tax even if your estate is less than $5.45 million for an individual exemption. The real challenge is the federal capital gains tax, running as high as 33% and having a major impact on an estate.

Recently, Market Watch offered some estate planning tips about the capital gains tax in "5 ways to protect your estate from capital gains taxes."

The tips include:

  • Undo a Trust - Assets put into a trust to keep them out of the estate can have a greater capital gains tax cost when eventually sold.
  • Upstream Gifting - If you give an asset to an older family member, that asset will receive a step-up basis for capital gains when the older person passes away.
  • Joint-Exempt Step-Up Trust - These special trusts allow a surviving spouse to sell an asset after a spouse passes away without having to pay capital gains tax.
  • Home-Sale Tax Exclusion - If you have lived in and owned your home for two out of the last five years, you can sell it without owing capital gains on the first $250,000 of appreciation or $500,000 for married couples.
  • Like Kind Investments - Selling one type of property and using the proceeds to invest in the same type of property can allow you to delay paying capital gains tax.

An estate planning attorney can give additional information on dealing with a capital gains tax.

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