Congress Adjourns Leaving Taxpayers With A Mess
Merry Christmas from Congress. In their rush to railroad through the overhaul of our health care system, the Senate left many pressing tax issues unresolved. The Kiplinger Tax Letter says, “The gridlock could lead to a train wreck on taxes in 2010. Not only will unfinished business have to be taken care of, but Congress will be staring at another major deadline because the Bush tax cuts will expire at the end of the year if nothing is done.”
2010 is an election year and most Democrats (who control both houses) are now held in poor regard by voters because of the unpopular health reform. You can can expect Congress, not wanting to further upset constituents, to lay low and do nothing more next year. Major tax reform may not happen until 2011, adding to the mess.
The Senate was unable to pass an extension of the estate tax, meaning the tax will disappear in 2010 and then revert back to pre-2001 levels with a top rate of 60% and a low $1 million exemption. Also ending for one year is the generation-skipping tax; however, there is no change in the $1 million limit for the gift tax but the top rate falls to 35%. This will provide a very narrow window for some tax planning.
If you are the heir of someone who dies in 2010, you will need to really pay attention. Assets you receive will not get a step-up in basis, meaning that when you dispose of them you will be hit with a capital gains tax. Since that tax is scheduled to possibly double in 2011, it may mean heirs that normally would have paid no taxes under the 2009 rules will get clobbered in 2011.
The bottom line is that most people with any net worth will benefit from getting some additional tax advice in 2010.