According to the Internal Revenue Service (IRS) an Estate Tax is a tax that is imposed on your right to transfer your property and belongings after your death. The individual who is in charge of handing and filing an Estate Tax return is often the estate representative. An estate representative can be an family attorney or a family member who was declared the executor of a state in a will. When dealing with an Estate Tax there are number of things that an individual or family must do when preparing to deal with the Internal Revenue Service (IRS).
There are certain restrictions for estates that are subject to the Estate Tax. Each year tax laws are updated or completely changed; therefore, estate representatives or family members are encouraged to review the new Estate Tax laws. At the current time the majority of estates are not subject to an Estate Tax if they are valued at less than one million fifty thousand dollars. The value is expected to increase up to two million dollars for the 2016 year. In addition to meeting a certain estate value, it is also likely that the majority of properties that are jointly owned will not be taxed if at least one property owner is still living.
An Estate Tax return is due to be submitted to the Internal Revenue Service (IRS) nine months after the estate owner passed away. As with regular tax returns it is possible for estate representatives or family members to obtain a deadline extension. If tax is owed on the estate it still needs to be paid before the nine months arrives even if an return deadline was granted. Not paying the estimated amount of estate taxes due can result in late fees or additional penalties.
The Internal Revenue Service (IRS) will determine the amount of tax owed by taking the fair market value of all property items that were previously owned by the estate owner before he or she passed away. Fair market value takes into account when an item was purchased and exactly how much it is worth today. When all of these items are added up the total is referred to as the Gross Estate. As with traditional tax returns estate taxes are allowed tax credits and tax deductions. When all of these items are computed together the amount of tax owed will be determined.
Most of the laws that we should understand are very simple. However, if you fail to understand these laws then you might suffer huge losses. Some of these basic principles are:
1) Real Estate Taxes Can Be Avoided While Selling Home- According to the law of real estate you would be exempted from profits if you are selling your home for not more than $250,000 if you file your request singly and $500,000 if you are filing it jointly. Such laws are made to safeguard the families and let them own their house or encourage investment in the real estate. What is more? If your profit is more than the specified amount then the tax is levied upon the price exceeding the limit but that home should be your primary residence to avail any such benefits. For qualifying it as your primary residence you should stay there for at least two to five years before selling it.
2) Deductible Mortgage Interest – Most of us get mortgage whenever we buy a home. Mortgage interest proves to be the largest tax deductions one can ever have. What is more? Interest you pay on mortgage for homes other than primary residence is also tax deductible. Even the payments made against your primary mortgages or home equity loans is deductible.
3) Losses Incurred In Real Estate are Tax Deductible- When you file your tax with IRS, you can claim your loss on real estate if the selling price of that real estate is less than what you paid for it. It would be deducted from your tax.
4) Save Taxes By Reinvesting In Real Estate- If the real estate you purchased is not primary residence of yours even then all your capital gains are not calculated in taxes as your profits. You need to reinvest your profits in an another real estate within a period of two years if the property you sold was not your primary residence. This way you can avoid capital gains tax on your property sales.
Therefore, you can understand the importance of understanding the semantics of tax deductions that are required to save a lot of money you would have paid otherwise as your capital gain tax. You should take advice of a good tax professional to avail many such real estate deductions that are there in the law.
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