School Property Tax Relief for Seniors

The State of Delaware currently offers homeowners ages 65 and over a tax credit against their school property taxes of 50% (up to $500). The Senior School Property Tax Credit may be used against the property taxes on a primary residence.

• To qualify for this credit, you must be age 65 or older by June 30, 2013

• You must complete an application for the credit and submit it to the county in which you reside by April 30, 2013.
  • A copy of the Senior School Property Tax Credit application can be obtained at each county office or online for New Castle County at: http://www2.nccde.org/assessment/Exemptions/default.aspx.
• A copy of your valid driver's license or official state ID is required for each applicant at the time of the application.

• Applicants do not need to re-apply for the credit each year.
  • Once the applicant qualifies for the program, the amount of the credit will automatically be deducted from the property tax bill before it is mailed by the county.

• Taxpayers must pay their property tax bill in full by the end of each tax year in order to qualify for this credit for the subsequent property tax year.

• To receive the credit in 2013, residency must be established by December 31, 2012.
  • Individuals, who establish residency January 1, 2013 or later, must be legally domiciled within the State for at least three consecutive years to receive the credit.

Please contact Marie Holliday or Rachael Leberstien at (302) 656-6632 if you have any questions or would like additional information.

IRA Qualified Charitable Distribution Reinstated

IRA Qualified Charitable Distribution Reinstated

There are very few opportunities to conduct tax planning for 2012 once the calendar year flips to 2013.  However, a unique, very limited opportunity is available for the 2012 tax year.  One of the provisions of the recently passed American Taxpayer Relief Act of 2012 was the reinstatement of the Qualified Charitable Distribution (QCD) from an IRA to a charity.  To be eligible for QCD treatment and count toward an owner’s required minimum distribution (RMD) obligation for the year:

• You must transfer funds directly from your IRA to a charity
• Distributions must be made from an IRA account (not another retirement plan like a 401(k))
• The IRA owner must be 70 ½ years of age or older on the date of the donation from the IRA to the charity.
• The limitation per person in a single year is $100,000
• The donation must be to a public charity (most private foundations, CRATs, CLATs and some other entities do not qualify)

Many of you may now be asking the question, “How can I do this now when the year-end has already passed and I have received my RMD for 2012?”  Congress added special “look-back” provisions for the QCD since the legislation did not pass until January 1, 2013.  There are two options available:  one option is to elect to have a QCD made in January of 2013 count as if it was made on December 31, 2012, and option two is to re-characterize a distribution made in the month of December 2012 as a QCD as long as the same amount is donated to a qualified charitable organization by January 31, 2013.

The second question many of you may ask at this point is “why would this be worthwhile?”  IRA owners are required to take required minimum distributions out of their IRA once the taxpayer turns 70 ½ years of age.  In some instances, a taxpayer may not be able to realize the full benefit of a charitable contribution.  For instance, their income may be so low that they don’t exceed the standard deduction threshold (i.e. not able to itemize), or their charitable contributions may be so high in a year that they exceed the charitable contribution limits.  In these situations a QCD will enable them to “circumvent” thresholds to obtain the full taxable deduction for their contribution.

If you are interested in using this planning strategy for 2012, please contact Marie Holliday at (302) 691-2211 or MHolliday@CoverRossiter.com.

 You can also access this article on our website here.

The Fiscal Cliff

Talk of “going off the fiscal cliff” has been haunting me over the last several months. I started researching the provisions, and realized that the impact was much more far reaching than I had originally understood. The combination of the expiration of the Bush-era tax cuts as well as the impending start of the Obama Care tax provisions would have resulted in significant tax increases for virtually all of the American population, which could potentially cripple economic recovery. However, most people believed that these negotiations were related only to higher income taxpayers. For several months now, Cover & Rossiter has been providing emails, conducting seminars and even meeting individually with our clients to inform them of the impact of the pending changes. It was extremely difficult to adequately predict what would actually transpire because of the differing proposals from the Democrats and Republicans. I suspected these negotiations would go to the last minute, but hoped that legislation would pass with significant time to assist each one of you with year-end planning opportunities.

However, in true Congressional fashion of recent years, nothing was agreed upon until January 1, 2013. The tax side of the fiscal cliff was averted when the American Taxpayer Relief Act of 2012 was signed into law by President Obama on January 2. Outlined below are many of the provisions of this law:

• The Bush-era tax rates were extended for taxpayers with incomes below $400,000 (single) and $450,000 (married filing jointly); a new ordinary income tax bracket of 39.6% was created for taxpayers who exceed those thresholds. Originally, President Obama proposed that these increases would apply to AGI levels of $200,000 (single) and $250,000 (married filing jointly).
• Capital gains and qualified dividends for taxpayers that exceed those thresholds will now be 20% (to the extent that their income exceeds the thresholds). Taxpayers below the thresholds will continue to be taxed at the 15% rate on this income.
• The payroll tax holiday, which reduced Social Security tax from 6.2% to 4.2% in 2011 and 2012, was not extended. All wage earners will see a 2% increase in their Social Security tax withholdings for 2013.
• Trusts will continue to be taxed at the Bush-era tax rate levels except for the highest bracket. Trusts with income in excess of $11,950 will be taxed at the top rate of 39.6%.
• A permanent Alternative Minimum Tax (AMT) “patch” was enacted increasing the 2012 exemption levels to $50,600 for single taxpayers and $78,750 for married filing jointly taxpayers. In future years, the amounts will be indexed for inflation.
• Itemized deductions will once again be subject to phaseouts when income exceeds the threshold of $250,000 for single and $300,000 for married filing jointly.
• Personal exemption phaseouts will be reinstated as well once incomes exceed the threshold levels also indicated for itemized deductions.
• The maximum federal estate tax rate will be 40% for decedents dying after December 31, 2012 who have taxable estates in excess of approximately $5.12 million. The portability election between spouses will now be permanent.
• The child tax credit level was scheduled to be reduced to $500 in 2013, but has been permanently extended to $1,000.
• The 50% bonus depreciation provisions were extended through 2013.

There are many other provisions that were extended with this Act, so if you have specific questions please feel free to contact Marie Holliday at (302) 691-2211 or MHolliday@CoverRossiter.com.  
You can view this article on our website here.