General Question

JLeslie's avatar

Can you help me understand some of the estate tax laws regarding property?

Asked by JLeslie (54591points) June 11th, 2012

I know currently $5 million is exempt from estate taxes, and I think the tax rate is currently 35%.

I am trying learn about estate tax regarding real property and family farms. I was in a discussion about estate taxes and one of the people brought up the movie Secretariat, which I have not seen, and that the family lost the farm because of taxes. Here are my specific questions:

Is it estate taxes that create impossible taxation for families as they inherit property, or is it local property taxes or both? If you know specifically about what happened with the Secretariat situation that would help me too, but I would like a general answer about the laws and how they impact families, and if the laws have changed over time.

Are primary residences treated differently than business, secondary residences, and open land?

Is real property taxed at the same rate as cash?

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8 Answers

gailcalled's avatar

It’s a complicated subject, which is why there are real estate lawyers. I think you do it topic by topic.

Property taxes are different from estate taxes. I pay property taxes yearly (school and town); when I die, the estate (depending on how much it is, what the current estate tax laws are and how the property is disposed of) will be treated in a certain sui generis way.

We are still unraveling my mother’s estate, including the value of her apartment; the lawyers and her accountant and three of us are on month 13 and have spent enormous amounts of time.

My sister, b-i-l and I do it for free; the others charge by the hour.

Cash may be taxed as income or may be in a safety deposit box or under the bed.

One example; if my daughter inherits my house, she also inherits the mortgage, which she can continue to pay off or pay the lump sum. If she cannot afford the monthly mortgage payments, she forfeits the house to the bank unless she can sell it (the house) for enough money to cover the debt.

Congress and the president fiddle with the laws, willy nilly it seems. This is a good year to inherit, for example. Next year, the laws may change.

Take a course at your local community college or adult ed. at a uni. Even my accountant was moaning this year about the complexities and ever-changing problems with the federal and NY state tax laws.

JLeslie's avatar

@gailcalled I understand the difference between property tax, income tax, estate tax, mortgages, what I am trying to understand is all these claims about estate tax taking land and homes away from families after the death of parents, is that estate taxes making it impossible for the descendants to keep the real property, or is it actually the property taxes that are probably revised when the property changes hands?

gailcalled's avatar

Both and probably other issues.

We are, as I said, slowly dissecting the terms of my mother’s will and are surprised at every turn.

The feds. regulate property tax law.

JLeslie's avatar

@gailcalled Property tax is taxed locally, why do you say it is federal?

gailcalled's avatar

Taxable income from the sale of one’s primary dwelling is not a fixed figure.

You are correct about the local tax rates, however, Sorry for the error.

Real Estate Law for Dummies’

JLeslie's avatar

@gailcalled Is it still a primary dwelling when the person dies? And, do you mean estate tax regarding the primary dwelling? Or, were you referencing the exemptions for the gain on a primary dwelling of $250k and $500k (single and married respectovely) on the sale of a primary residence that we have when we are alive?

zenvelo's avatar

The real property that is part of an estate is valued and then taxed at the estate tax rate. The reason people lose farms and houses is they have to sell the property to pay the tax.

This was a problem under old tax rates (1980s/1990s), since a modest three bedroom house on a small (under .20 acres) parcel in California could be $1 million, even recently. This would push people into owing taxes while having hardly any liquid assets.

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