2022 Year End Letter

TAX IDEA: Arrange to sell real estate on the installment basis. If you receive installment payments over two or more tax years, the tax on a gain is paid over the years in which payments are actually received. This tax deferral treatment is automatic for most installment sales other than sales by “dealers” like real estate developers. Consult your attorney to make sure you have adequate recorded security against the property being sold and make sure the buyer is credit-worthy The taxable portion of each payment is based on the “gross profit ratio.” Gross profit ratio is determined by dividing the gross profit from the real estate sale by the price. Not only does the installment sale technique defer some of the tax due on a real estate deal, it will often reduce your overall tax liability if you are a high-income taxpayer. Reason: By spreading out the taxable gain over several years, you may pay tax on a greater portion of the gain at the 15% capital gain rate as opposed to the 20% rate. Installment Sales Normally, when you sell real estate at a gain, you must pay tax on the full amount of the capital gain in the year of the sale.

Year-end Tip: If it suits your purposes (e.g., you have a low tax year), you may “elect out” of installment sale treatment when you file your return..

Estate and Gift Taxes During the last decade, the unified estate and gift tax exclusion has gradually increased, while the top estate rate has not budged. For example, the exclusion for 2022 is $12.06 million, the highest it has ever been. (It is scheduled to revert to $5 million, plus inflation indexing, in 2026.) TAX IDEA: Incorporate this into your estate plan. For instance, your plan may involve various techniques, including trusts, that maximize the benefits of the estate and gift tax exemption. The following table shows the exemption and top estate tax rate for the last ten years.

Tax year

Estate tax exemption

Top estate tax rate

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

$5.25 million $5.34 million $5.43 million $5.45 million $5.49 million $11.18 million $11.40 million $11.58 million $11.70 million $12.06 million

40% 40% 40% 40% 40% 40% 40% 40% 40% 40%