Gift | Estate | Capital

3 Federal taxes that our Farm & Ranch families are faced with

To mention: These posts are derived from information gathered along the ride of our Texas Real Estate journey. Please consult your attorney and/or CPA for the most accurate info, as our government is actively seeking changes regarding such taxes 🙂

We are going to focus on three federal taxes that arise frequently for farm and ranch families when it comes to estate planning: the estate tax, the gift tax, and the capital gains tax.

The Death Tax!

What is it? 

Really known as the estate tax is a federal level tax imposed when a person dies and transfers assets to someone other than a surviving spouse. Basically -> a tax on the right to pass assets to another person. 

Texas does not have a state-level estate tax, but some other states do.

Who pays it? 

When the fair market value of the estate is worth more than the recognized exemption, the estate tax is owed.  Currently, for 2021, the estate tax exemption is $11.7 million per person. 

If owed, the estate tax is generally due within 9 months of the death. However, there are exemptions.

The Gift Tax!

What is it? 

Another federal tax – this one on asset transfers for less than fair market value.  In other words, if you give an asset to someone, or if you sell an asset and less than full consideration is paid, it is considered a gift subject to the gift tax. For 2021, the annual exclusion is $15,000. Importantly, the annual exclusion applies to each donee 

Who pays it? 

Generally, the donor (person giving the gift) is responsible for the gift tax if it is owed.

Anyone who makes a taxable gift (one exceeding the $15,000 annual exclusion) must file a gift tax return (Form 709) by the normal tax filing deadline the year after the gift is made. Anyone who makes a taxable gift (one exceeding the $15,000 annual exclusion) must file a gift tax return (Form 709) by the normal tax filing deadline the year after the gift is made. 

How is the gift tax calculated? 

The gift tax rates range between 18% – 40% depending on the value of the taxable gift.  However, most people will not actually pay that amount due to the annual exclusion and the the lifetime exclusion.

Can I be exempt?

Yes!

  1. A gift worth less than the annual exclusion is not subject to the gift tax.
  2. Educational and medical exclusions that may be available for a person paying school tuition or medical expenses for another person. 
  3. Gifts made to one’s spouse are excluded from gift tax liability.
  4. Gifts to political organizations are excluded.
  5. Gifts given to qualifying charities are deductible from the value of the gift made.

Stay tuned for our final F&R tax post!

HillCoGroup - Danielle Crain, REALTOR | Certified Mentor

HillCoGroup - Danielle Crain, REALTOR | Certified Mentor

Uniting a passion with a career, serving the people of Central & South Texas with all of their real estate needs, every step of the way. Every day is an opportunity to build relationships that allow us to better serve our clients in an effort to provide them a desirable, seamless transaction - on both the purchase and sale sides!

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