Property tax limit expanded

One of the several new statutes passed in December and signed by the Governor:

Public Act 497 (2012) modifies the statute which implements Proposal A, placing limits ("caps") on increases to the real estate property tax. That statute specifies what constitutes a "transfer of ownership," a conveyance or transfer which removes the cap and allows the taxable value to increase, and then lists a series of events or conveyances which are not considered a "transfer of ownership" for Proposal A purposes. An example of the latter includes a conveyance of real estate from the owner to a trust whose sole present beneficiary is the same owner - the familiar revocable living trust.

The amendment adds another exception to the second list: a conveyance - or gift under a will or trust - from a parent to a child (or vice versa).

If the property in question is residential real estate, and if the use of the real estate "does not change," the cap on property taxes will continue after such a transfer. This new exception will apply to a conveyance after December 31, 2013.

The Act does not define what constitutes a change of use. One interpretation would be that a child who inherits a home that his parents owned and occupied and thereafter rents it out to a tenant will not be entitled to the continued exemption. But a contrary interpretation would be that any continued use of the land for single-family residential purposes would qualify for the extended cap.

The new "fiscal cliff" law

The "fiscal cliff" bill passed by the Senate on New Year's Eve and by the House on New Year's Day includes the following for estate taxes:

• Retaining the current $5 million per person / $10 million per couple exemption amount. The amount will be indexed for inflation. (The exemption for 2013 is $5.25 million per person.)
• A modest increase in the top estate tax rate (applicable to those whose assets are more than $1 million over the exemption) from 35% to 40% 

It also would raise taxes on long-term capital gains, for those with incomes over $400,000 per year ($450,000 for married couples), from 15% to 20%.

Extended for five years: the earned income credit, child tax credit, tuition credit.

The 2% holiday for Social Security payroll taxes was allowed to expire.