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  • Retroactive taxes

    Hello

    I have been following your posts on the site and I was curious if I may ask you a question.

    1) Do you know when estate taxes might go up? Will it be retroactive to 2021 or will likely be applied in 2022?
    2) Do you know when the stepped up basis hike might go into effect 2021 or 2022?
    3) what is the stepped basis proposed vs a year ago
    4) if you opened a trust last year but the money was only pulled over this year by the trust can it still be considered 2020 if thenpaperowrk to pull over the money occurred last year
    5) is there anyway to pull money out of a trust if the estate taxes proposed goes retroactive to 2021 how likely is this we are talking irrevocable

  • #2
    1. No. Who knows.
    2. No.
    3. No idea.
    4. No idea.
    5. No idea.

    Hope this helped.

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    • #3
      Speculation on such what ifs, is not really productive right now. Especially, considering any action would require all 50 Democrats in the Senate and the use of reconciliation. There are already Democrats indicating they are not supportive of either proposal. Just because something is on a wish list does not make it law.

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      • #4
        I see i guess my real question is how likely is it to be retroactive and apply to 2021

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        • #5
          Estate tax and what kind of gift tax exemption will it be the Obama one or the Bernie sanders one also reconciliation was recently approved
          ​​​​

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          • #6
            If something gets passed, it will most likely be retroactive to Jan 1 , so if you have not died yet , it is probably too late.

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            • #7
              By the time congress gets to these taxation issues, there will likely already be a lot of dissension. It is unknowable what will happen with estate taxes, with stepped up basis, and with overall tax rates. Right now they are working on finding a compromise on the infrastructure, etc. bill to get that through congress. Taxes will come later, and the administration may have used up their goodwill with the moderate democratic senators by that time.

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              • #8
                I guess they need to be clearer about this point. My CPA tells me the IRS has indicated they will not do retroactive taxes. I am upset at Charles Schwab for waiting for so long to transfer the money. I told them repeatedly I wanted this done in 2020 but they did it the first week of 2021 under the trust. I agree it maybe a while before they do this in 2021 but even under trump the tax law did not go into effect until next year. With budget reconciliation anything is possible since it has been approved for two uses for infrastructure for 2021 still and I assume one for use for fiscal year 2022. It depends how much they can stuff into 2021. The Bernie sanders plan states it will not go into effect until 2022. Alot more americans will be impacted by a 1 million dollar gift and 3.5 million estate including small businesses and people with homes

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                • #9
                  We discussed what we know for sure in a recent thread in this forum; I'm including the link:

                  https://forum.whitecoatinvestor.com/...g-now-or-later

                  The concept of retroactive taxes is raised occasionally, and while I've not put time into researching how legal challenges to such a tax law would play out, it does seem very problematic for the IRS to try to enforce if they try to go back more than one tax year (for clarity I want to be clear about that line). I can't think of any retroactive tax law that is currently in place in the U.S. that goes beyond one year, so at least we can be hopeful we won't deal with that. You seem to be concerned about something passing later this year, but you don't mention enough details of your transfer, including how much it was, for me to address it. Hopefully at most you'll just have to file a gift tax return and use part of your lifetime exclusion amount but not pay gift tax. Some planners recommend making gifts made this year reversible, but I won't try to get into the techniques for doing so here.

                  IRC Section 1041 gives us stepped up basis, and good policy reasons exist for it so I'm not very concerned right now we'll lose it completely, although there has been talk of that. Perhaps it will be limited in the future, but I haven't heard a buzz about it loud enough to generally recommend people engage in strategies to plan around this right now. Just keep it in mind and keep listening/reading for more talk about these issues while thinking about what we know is coming in 2026.
                  Last edited by Gavin West; 04-06-2021, 11:38 AM.

                  Comment


                  • #10
                    Originally posted by Gavin West View Post
                    Just keep it in mind and keep listening/reading for more talk about these issues while thinking about what we know is coming in 2026.
                    Are you referring to the expiration of the TCJA changes or something else?

                    Comment


                    • #11
                      There have been several cases of retroactive tax laws in just the last 25 years. The Supreme Court has ruled on several cases in the last 100 years supporting retroactive tax law changes.

                      They have held that the mere application of a retroactive income tax to the calendar year of enactment does not automatically violate due process. However, they have held that retroactive taxes can not be arbitrary, harsh, and oppressive.

                      I am sure that any retroactive gift/estate tax increase and any elimination of the stepped up basis would be challenged on those grounds. I would be very surprised that if/when they are even able to enact such changes, they would risk them being ruled unconstitutional by making them retroactive.

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                      • #12
                        Yes I made a gift to an irrevocable trust that takes me over the 2009 exemption amount and had made a gift in 2018ntoman individual that would take me over the 2009 lifetime gift amount but the amount set by the Obama admin or Trump admin. The actual transfer took place on January 7 2021 although I begged them to do it in December 2020 when the trust was signed. I guess if absolute worst case scenario I could try to reverse the gift in 2018 to an individual but even the Bernie Sanders plan takes place 2022 for the new exemptions per his draft bill. I may have dodged a bullet time will tell. NY just enacted higher taxes for this year. I guess anything is possible but not likely but with budget reconciliation going to unlimited rounds anything is possible. I suspect by October 2022 I can breath a sigh of relief if nothing is passed. I don't think the exemptions will ever be this high again so might be a good time to look into this

                        Comment


                        • #13
                          Originally posted by FIREchief View Post

                          Are you referring to the expiration of the TCJA changes or something else?
                          Yes, as discussed in the other thread, the expiration of Section 11061 of the Tax Cuts and Jobs Act and how on January 1, 2026, the basic exclusion amount (BEA) will revert to $5 million as adjusted for inflation.

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                          • #14
                            The IRS has clarified that the estate tax exemption will not be retroactive. I read this in an AICPA article recently in response to a client question but d/n save it.
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              Originally posted by jfoxcpacfp View Post
                              The IRS has clarified that the estate tax exemption will not be retroactive. I read this in an AICPA article recently in response to a client question but d/n save it.
                              Not the AICPA, but the IRS itself: https://www.irs.gov/newsroom/final-r...tes-after-2025
                              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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