Anybody who’s accumulated a significant amount of real estate, stocks or other assets over the years could be affected by a stalemate playing out on Capitol Hill.
The House of Representatives left town and won’t be back until mid January. The Senate has been burning the midnight oil on health care and budget issues.
Left in the lurch, however, is a multi-billion-dollar issue touching many people who own real estate: Estate taxes. If the Senate fails to pass a bill preserving current estate tax rates, as the House did before heading home for the holidays, the estate tax will totally disappear January first.
While that might sound like outstandingly good news for people who want to pass along real estate to children or grandchildren tax-free, there’s a major complication here.
If the estate tax disappears in 2010 because the Senate couldn’t get its act together in 2009, the disappearance will only be temporary, for one year. Then, under a legislative deal worked out nearly a decade ago, the estate tax will suddenly spring back to life in 2011 with higher tax rates and lower exclusions.
And in the meantime, during 2010, taxpayers will be hit with capital gains taxes on any property they inherit, with the gains measured against what the original cost of the property was to the deceased relative or benefactor.
Picture the complications of that when it comes to real estate: What did dear old Uncle Bob pay for that piece of land way back in 1953, before he willed it to Aunt Mary, who’s now leaving it to her children?