Articles

Winter 2001 Tax Law Update

Sound tax planning is proactive and requires a constant monitoring of current developments. Opportunities exist for those with knowledge and foresight, and pitfalls await those without it. In an effort to assist you in taking advantage of the opportunities and avoiding the pitfalls, we are pleased to provide you with the first of our periodic updates of recent Tax Law developments.

• New Rules on Distributions From IRA's & Retirement Plans. The IRS issued new regulations in January that simplify and improve the rules for distributions from IRA's and Retirement Plans. These regulations are still in proposed form, but are expected to be finalized in their current form sometime this year. We are currently working with several clients who will benefit enormously from the new rules. Please contact us if you would like to discuss how this development might affect your situation, especially if you are approaching or have reached age 70 ½ (the age at which distributions must commence from IRA's and retirement plans).

• "Death Tax" Repeal Proposal. True to his campaign pledge, President Bush has proposed a package of significant tax cuts, including the repeal of the so-called "Death Tax." Naturally, a repeal of the Federal Estate and Gift Tax would be a welcome relief for many of our clients. However, repeal may not be the panacea that many think it will be. Consider the following: (1) Any repeal would likely be phased in over nine or ten years; (2) Repeal may eliminate the income tax savings achieved through a "step up" in the basis of property received from a decedent; and (3) States (including New Jersey) which indirectly rely on the Federal Estate Tax for revenue, may seek to impose their own Estate Tax. We will keep you informed of further developments in this area as the year progresses.

• IRS Authorizes "Reverse" Like-Kind Exchanges. Many of our clients have made shrewd investments in real estate and business assets whose value now greatly exceeds the purchase price. That's the good news. The bad news is the tax bite that awaits when the property is sold. One technique for deferring the tax is to exchange appreciated property for other property. This is known as a tax-free like-kind exchange. The IRS recently issued rules which now allow a "reverse" like-kind exchange where replacement property is purchased before existing property is sold. Please contact us to discuss whether a tax-free like-kind exchange or "reverse" like-kind exchange makes sense in your situation.