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Hamptons.com
July 28, 2020

Minimalizing Capital Gains with Estate Planning

rschlackby rschlack
in Real Estate
Home Real Estate

Real property in the Hamptons has always enjoyed a steady increase in value. But with this increase in value, owners may incur a substantial tax bill from the capital gain in their real property if and when they decide to sell. Federal long-term term capital gains are taxed at the rate of 0%, 15% or 20%, depending on the seller’s income and marital status. In addition, New York capital gains are taxed as ordinary income. Fortunately, if the property being sold is a primary residence in which the seller has resided for 2 or more years, the seller can claim the benefit of a $250,000 exclusion ($500,000 for a married couple). In addition, sellers can deduct any capital improvements they have made over the years.

Even for a modest couple living on the East End, the capital gain is a huge consideration when contemplating a sale. For example, consider the case where a married couple owns a primary residence in Sag Harbor. In 1979 they purchased the property for $100,000 and, over the years, expended $400,000 on home improvements. The basis for capital gain purposes is therefore $500,000. Assume they now receive an offer to sell and will net $3 million after closing costs. Each spouse can claim each a $250,000 exemption from capital gains, shielding $500,000 from capital gains tax. Accordingly, the gain on which they will be taxed is $2 million dollars, resulting in a substantial tax bill.

How can this hefty capital gains tax be avoided? One method is to wait until one spouse passes away and the surviving spouse receives a step-up in basis for one-half the value of the home. This is possible because at death, all property owned by the decedent spouse, not just the primary residence, gets an increase in basis equal to fair market value as of the date of death. So, in our example above, when the first spouse dies, that spouse’s one-half gets stepped up to $1.5 million. At a subsequent sale, the surviving spouse’s basis is $250,000 plus the $250,000 exemption. This, coupled with the step-up received at the first spouse’s death, places the basis in the real property at $2 million. Thus, the surviving spouse only pays capital gains on $1 million, resulting in a significant savings.

However, there may be a way to save even more capital gains – in fact even reduce the tax to zero. The surviving spouse may be able to avoid all capital gains tax on a sale if they purchased the property before 1977. In that case, there is a 100% step-up in basis at the death of the first spouse. The “catch” is that you are only able to get the full step-up in basis at the death of the first spouse if that now deceased spouse contributed all the money to the purchase of the property. These were the facts of the now famous Gallenstein case where the Court found in favor of the tax payer and awarded a 100% step-up in cost basis at the death of the first spouse for a property that had been purchased pre-1977 when Congress changed the tax law.

In order for this “double” step up in basis to apply, the deed must have been continuously in both names pre-1977 until the death of the first spouse. Transferring the deed will negate this benefit, even if the deed is later transferred back into both names. The moral of the story is always review the chain of title of the deed. If it is owned by both spouses before 1977, speak to an attorney before making any changes to the deed.

What if the house was not purchased before 1977 or if there had been a change to the deed? A 100% step up in basis at the death of either spouse can still be achieved by placing the home or property into a joint revocable trust. If drafted properly, the surviving spouse can completely eliminate capital gains tax on a sale after the death of either spouse, regardless of who contributed to the purchase of the property. Also, any assets, real or personal property, owned by the trust will get a 100% step up.

Any such trust must be part of a comprehensive estate plan that considers estate taxes as well. Potential estate taxes are especially relevant now, with large government spending. In a post-COVID and post-election society, we may well see a reduction in estate tax exemptions. For high value estates, a varied approach that does not place all assets into a joint trust is necessary if both spouses’ estate tax exemptions must be captured, as the estate tax rates are higher than long-term capital gains tax rates.

Estate planning is nuanced, there are pros and cons to every estate planning technique. It is important to review your specific situation and goals with an experienced estate planning attorney to ascertain the most beneficial choice for you.

For more information, visit burnerlaw.com.

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A New Kind of Hand Sanitizer, #InYaHands, Hits the Market

A New Kind of Hand Sanitizer, #InYaHands, Hits the Market

  • 167 Dune Road, Bridgehampton, NY 11932⁠
Saunders Exclusive: $42,500,000⁠
@jenniferwilsonhamptons 
@edbruehl @leemohlerehamptons 
@hamptonsrealestate 
⁠
Experience extraordinary coastal living with this exquisite oceanfront estate on Dune Road in Bridgehampton. ⁠
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Designed by the renowned architect Francis Fleetwood, this remarkable property boasts 300 feet of private ocean frontage, complete with its own private boardwalk leading directly to the beach, all set on over 3 acres of prime land.⁠
⁠
The charming shingle-style residence encompasses 4,200 +/- sq. ft. of luxurious living space, featuring 5 bedrooms and 5 full bathrooms, plus an additional half bath.⁠
⁠
Read the full article at Hamptons.com (Link in Bio)⁠
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#duneroad #oceanfront #bridgehampton #realestate #hamptons #francisfleetwood ⁠
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  • The Hamptons have seen their fair share of collaborations and takeovers this summer. Still, nothing compares to The h.wood Group and Chase Sapphire Reserve’s transformation of Montauk hotspot Mary Lou’s into Delilah Montauk.⁠
⁠
The four-day takeover combined unforgettable dining experiences with show-stopping live entertainment featuring performances by Zack Bia, Alesso, Gwen Stefani, and DJ Pee.Wee (Anderson Paak). ⁠
⁠
Exclusively for Chase Sapphire Reserve cardholders, diners were treated to white glove hospitality and Delilah’s staples, including the famous chicken tenders and tuna tartare, and bold twists on Hamptons classics like lobster rolls, striped bass crudo, and crab and avocado toast. 

Check out more at Hamptons.com (Link in Bio)

#gwenstefani #alesso #djpeewee #chasesapphirereserve #delilahmontauk #montauk #hamptons
  • LVIS thrift shops are open Tuesdays through Saturdays 10 AM through 5 PM

donations are accepted Wednesday through Saturday 10 AM through 1 PM by appointment 

located at 95 Main St East Hampton
  • Check out the Top Hamptons Events This Weekend!⁠
⁠
🚗 The Bridge IX⁠
📅 Sat, Sept 13 | 2–7PM⁠
📍 The Bridge, Bridgehampton⁠
Over 300 rare automobiles showcased across stunning landscapes.⁠
⁠
🎬 23rd Annual Surf Movie Night⁠
📅 Fri, Sept 12 | 5:30–9PM⁠
📍 Southampton Arts Center⁠
Surfboard swap, live music & outdoor film screening. 🌊⁠
⁠
🍝 San Gennaro Feast of the Hamptons⁠
📅 Sat, Sept 13 – Sun, Sept 14 | 10AM⁠
📍 Hampton Bays⁠
Italian pastries, live entertainment & fireworks Sat @ 8:15PM 🎆⁠
⁠
🎭 In Process: Roderick George⁠
📅 Sat, Sept 13 | 7PM⁠
📍 Guild Hall, East Hampton⁠
A special in-process presentation of The Missing Fruit (Part I).⁠
⁠
🎤 Sheena Easton at WHBPAC⁠
📅 Sat, Sept 13 | 8PM⁠
📍 Westhampton Beach PAC⁠
Grammy-winning artist live on stage!⁠
⁠
☕ Cars & Coffee⁠
📅 Sun, Sept 14 | 9–11AM⁠
📍 Bridgehampton Museum⁠
Classic & exotic cars, food, drinks & live music.⁠
⁠
🛍 Hampton Vintage⁠
📅 Sun, Sept 14 | 10AM–5PM⁠
📍 Westhampton Beach Village Green⁠
Shop unique vintage finds!⁠
⁠
🎶 Hamptons Festival of Music Finale⁠
📅 Sun, Sept 14 | 4PM⁠
📍 St. Luke’s Church, East Hampton⁠
Featuring Cimarosa, Berlioz & Beethoven.⁠
⁠
🍷 Wine Dinner with Pradorey at R.AIRE⁠
📅 Tues, Sept 16 | 6:30PM⁠
📍 Hampton Bays⁠
Five-course tasting menu with exquisite wine pairings.⁠
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🎥 Toy Story 30th Anniversary Screening⁠
📅 Sept 12–15 | Various Times⁠
📍 Southampton Playhouse⁠
Celebrate Woody & Buzz’s timeless adventure!⁠
⁠
Check out more events at Hamptons.com (Link in Bio)⁠
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#carshow #hamptons #sangennaro #sangennarofeast #winedinner #bridgeIX
  • The Animal Rescue Fund of the Hamptons (ARF Hamptons) hosted the Bow Wow Meow Ball in East Hampton. The evening’s honorees, Ellen and Chuck Scarborough, were presented with the Champion of Animals Award, recognizing their more than twenty-five years of support to ARF. ⁠
⁠
Over 400 guests celebrated ARF’s remarkable work with cocktails, followed by dinner catered by Olivier Cheng. Peter Marino, accompanied by his daughter and ARF Board Member Isabelle Trapnell Marino, presented the Scarboroughs with their award. ⁠
⁠
📸: Patrick McMullan/PMC⁠
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Check out the full gallery at Hamptons.com (Link in Bio)⁠
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#arf #bowwowmeowball #hamptons #animalrescuefund #animalrescue
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