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Tax planning considerations as 2013 nears

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By NANCY O. KUHN & STEVEN A. SIGSBURY

Circle Dec. 31, 2012 on your calendar. Not only is it New Year’s Eve, but it is also the last date that a multitude of current tax rates, credits and exemptions will be in effect, both at the state and federal levels. The question that should be on many people’s minds heading into this election season is: What action needs to be taken this year, and what can wait until later?

This article presents a short rundown of the various tax law changes that are slated to take effect as of Jan. 1, 2013, and suggests a few planning ideas that individual taxpayers may wish to consider in light of these changes.

Income taxes

Unless Congress and the president act, individual income tax rates are scheduled to rise in 2013. This includes rates on capital gains and qualified dividends. Higher income earners will also see the addition of a new 3.8 percent Medicare surtax, created by the Affordable Care Act.

So what should you do?  Here are some ideas that may be helpful:

• Convert Traditional IRAs to Roth IRAs, which will allow you to pay ordinary income tax on the converted amount using 2012 rates, and exclude future growth and distributions from additional income tax.

• Plan to accelerate income this year, so that it will be taxed at the current income tax rates.  Accelerating income this year will also prevent it from being subject to the 0.9 percent wage surtax.

• Cash in appreciated stocks this year so that you can trigger recognition of capital gain at the favorable 15 percent rate and not subject the investment’s appreciation to the 3.8 percent Medicare surtax next year. (This income would be subject to the surtax only if the $200,000/250,000 taxing threshold is met.)

• Consider incurring and deducting medical and dental expenses (including insurance premiums). The threshold to deduct medical and dental expenses for itemizers is scheduled to increase from 7.5 percent to 10 percent of adjusted gross income in 2013.

Higher income earners (approximately $200,000+) will again be subject to the phase-out of itemized deductions in 2013. The deductions for taxes, interest (except investment interest), charitable contributions, employee job expenses and “miscellaneous” itemized deductions (excluding gambling and casualty or theft losses), will be reduced. The thresholds to trigger the phase out have not been announced, but will be indexed for inflation based on the 2009 threshold of $166,800. If you may trigger this limitation in 2013, consider incurring 2013 expenses that you normally itemize in 2012, so that you may receive a full deduction for the expense.  For example, give generously to your favorite charities in 2012 to maximize the value of the charitable deduction.

Transfer taxes

In addition to the long list of expiring income tax provisions, the current estate, gift, and generation-skipping transfer (“GST”) tax rates and exemptions are also scheduled to “roll back” to their 2001 levels. The exact figures will be tied to inflation, based on levels prior to the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001, also known as the “Bush Tax Cuts.”

The practical effect of this roll back is staggering. The past few years have given individuals the unprecedented ability to transfer, free of gift or estate taxes, up to $5,120,000 of wealth.  Unless Congress acts to extend the current law, that figure will drop to $1 million on Jan. 1, 2013.  Transfers above that amount will trigger gift or estate tax at a 55% rate in 2013.

With these scheduled changes, which will increase rates and decrease exemptions, individuals should consider estate planning techniques to utilize the current $5,120,000 exemptions and the favorable tax rate available to them this year.  Planning techniques that are attractive include:

• Making large gifts in 2012 to use some, or all, of your $5,120,000 gift tax exemption. If you wait, such property may be subject to the 55 percent tax rate.

• Gifting to irrevocable trusts to benefit children and grandchildren. This will utilize your gift tax exemption, and the appreciation on the gift will not be subject to estate tax at your death.

• Gifting to a grantor retained annuity trust (“GRAT”), which will utilize your gift tax exemption and take advantage of the current low interest rates.  Appreciation above the trust’s stated interest rate will remain in the trust after the annuity term ends, free of gift tax.

• Allocating your available GST exemption to an irrevocable trust, which will allow you to exempt up to $5 million of trust property for your beneficiaries.

Conclusion

The upcoming election may break the logjam that is currently preventing tax reform.  However, given the number of tax changes that will be implemented by default on Jan. 1, 2013, it is strongly recommended that individuals accomplish any tax-related planning well before the end of the year, while considering that current rates could continue, decline, or increase in 2013.  More likely a mixture of rate changes will occur, and so all 2012 tax planning should consider all scenarios.

The contents of this article are intended for general informational purposes only and should not be considered legal advice.

This is part of a series of monthly articles by Jackson & Campbell on legal issues of interest to the LBGT community. Celebrating its 125th anniversary, Jackson & Campbell is a full-service law firm based in Washington with offices in Maryland and Virginia. If you have questions regarding this article, contact Nancy O. Kuhn at 202-457-1621 or [email protected] or Steven A. Sigsbury at 202-457-1627 or [email protected]. If you have questions regarding our firm, please contact Don Uttrich, who chairs our Diversity Committee, at 202-457-4266 or [email protected].

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Real Estate

Moving presents a chance to ‘clean house’

Leave some of the old you behind

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Moving is a good opportunity to shed the old and make way for the new. (Photo by Basilico Studio Stock/Bigstock)

One of the biggest headaches of the new home process is the actual moving part. By the time someone is buying a home, most people are beyond the “I just need a pickup truck, a pizza and a case of beer for my friends.” 

If that is still someone’s preferred way to move, that’s great. However, many people find they need a much more robust plan. It can also trigger a lot of feelings about items one owns, what to do with them, do they have too much, should I keep this memento that I never use? Etc. 

Moving is a chance for a person to “clean house” literally, figuratively, spiritually and energetically. A person can figure out which items they want to keep, and which need to go. As someone who recently moved across the country, I can speak to this experience. It’s also time for what people call “the fresh start effect.” This phenomenon, according to psychologists, can happen in little moments (like the start of a new work week) and bigger moments (such as moving from one home to the next).  

The fresh start effect offers these benefits often mentioned by psychologists:

  • Mental Accounting: Dates act as chapter breaks, letting you put past failures into a previous period.
  • Psychological Distance: You separate your flawed past self from your aspirational future self (“That was the old me”).
  • Optimism Boost: New beginnings clear mental clutter and increase your sense of agency and control

Does this mean that “the new you” will be the perfect version you envisioned? Probably not. We are humans. But it might mean you get a chance to “leave some of the old you behind” within the walls you used to live in, and now have a chance to have a new layout, a new décor, a new color pattern, new wallpaper, donate old furniture and books or magazines, throw out clothes you no longer use or fit in, and enjoy the opportunity to literally use the, “Does this spark joy?” method that was made so popular by Marie Kondo in her Netflix series.  

So, for all its hassle and headache, moving is a chance to shake off the “old you” and try on the new you, to incorporate the items you would like to keep and use more of, and shed the items, habits, and ways of thinking that you feel no longer serve you. 

I can speak to the experiences that several of my clients had when they moved from a previous residence to a newer one. It usually coincided with a change in relationship status, a change in employment, a change in family size, but sometimes it just seemed to correlate to a new attitude and perspective that the client was really hoping for. 

I have literally had clients come to me after the fact, in tears, that they were so happy they made the decision to move out of a situation that no longer served them, and move into one that felt like a much better fit. 

Change can be annoying and overwhelming at times, but usually most people come out the other side, not wanting to return to the way they were before. 


Joseph Hudson is a referral agent with RLAH. Reach him at 703-587-0597 or [email protected].

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Real Estate

With gas prices soaring again, a staycation is a good plan

Home can be your personal retreat and your own private resort

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Retreat to your own deck or backyard for an affordable, stress-free staycation. (Photo by Artazum LLC/Bigstock)

When airfare costs more than your monthly utility bill and a weekend road trip requires a second mortgage just to fill the gas tank, many homeowners are discovering an unexpected luxury: the staycation.

A staycation isn’t settling for less—it’s reaping the benefits of one of the biggest investments you can make: your home. Much more than a place to sleep, it’s your personal retreat, your gathering place and, with a little preparation, your very own private resort.

Whether you own a single-family home, a townhouse, or a condo, creating a memorable staycation starts with appreciating what made you fall in love with your property in the first place.

Start with a home refresh. Think about checking into a beautiful vacation rental. It’s spotless, organized, and inviting. You can recreate that same feeling by spending a day preparing your home before your staycation officially begins.

Clear away clutter, deep clean the bathrooms and kitchen, wash the windows, and put fresh linens on every bed – even if you’re not expecting guests. Fluff the pillows, light a favorite candle, and place fresh flowers on the table. These small touches instantly make your home feel more luxurious.

If your budget allows, hiring a professional cleaning service can be one of the best staycation perquisites you make. After all, vacation should begin the moment you wake up and not after you’ve spent the day scrubbing floors.

Treat your staycation like a real trip. Set away messages on your phone and out of office notices on your email. Skip unnecessary chores for a few days. Giving yourself permission to relax may be the most valuable part of the entire experience.

One of the greatest advantages homeowners have over travelers is private outdoor living space. Whether it’s a spacious backyard, a screened porch, a rooftop terrace, or a cozy condo balcony, these areas can become the centerpiece of your staycation.

Stringing lights and adding comfortable seating, colorful planters, and outdoor rugs can completely transform the atmosphere without spending thousands of dollars. Add a portable fire pit, a tabletop fountain, or a hammock, and suddenly your backyard starts competing with many resorts.

Host an evening cookout, organize a game night, invite neighbors over for dessert, or gather around the fire pit for conversation after sunset. These simple moments often become the memories we treasure most.

Inside, transform your family room into a home theater complete with popcorn and comfortable blankets. Turn your breakfast room into a morning coffee café. Designate a quiet reading corner where phones are prohibited. Create a spa-like bathroom with plush towels, candles, bath salts, and relaxing music.

One of the highlights of traveling is experiencing new food. Instead of dining out every night, create themed dinners inspired by your favorite destinations. Prepare homemade Italian pasta one evening, Caribbean grilled seafood another, or a backyard Texas barbecue over the weekend. For a touch of whimsy, dress the part.

Pair each meal with music and libations from the region and enjoy dinner outdoors whenever possible. Suddenly, your dining room becomes part of the vacation experience instead of just another place to eat.

Families with children can turn a staycation into an adventure by seeing their home through a child’s eyes. Set up a backyard camping experience with a tent, flashlights, and s’mores around the fire pit. Transform the living room into an indoor campground complete with sleeping bags and a movie under a blanket “fort.” Organize a backyard Olympics with relay races, water balloon tosses, scavenger hunts, or miniature golf using household items. 

Encourage children to plan a family picnic in the backyard or on the patio, choose a theme for a movie marathon, or help prepare meals inspired by countries they’d like to visit someday. The goal is to create experiences your children will remember long after summer is over.

Enjoy the amenities you already pay for. Condominium communities and many planned neighborhoods offer amenities that residents often overlook.

Swimming pools, fitness centers, tennis and pickleball courts, walking trails, clubhouses, grilling stations, and community gardens are designed to enhance your lifestyle. During your staycation, make a point of exploring everything your community offers. You may discover you’ve been living beside your own private resort all along.

Real estate professionals often talk about resale value, appreciation, and return on investment. While those things certainly matter, there’s another return that’s harder to measure: the enjoyment you get from living in your home every day.

You don’t need a boarding pass to recharge. You don’t need a hotel reservation to make memories. Sometimes the perfect getaway is the one you already own.


Valerie M. Blake is a licensed Associate Broker in D.C., Maryland, and Virginia with RLAH @properties. Call or text her at 202-246-8602, email her at [email protected] or follow her on Facebook at TheRealst8ofAffairs.

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Real Estate

When buying a home, it’s decisions, decisions, decisions

Keeping notes on the process makes for an informed purchase

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If you’re buying a home, take careful notes throughout the process. (Photo by Andy Dean Photography/Bigstock)

When looking to buy a home, there are lots of details to consider. Many of my clients would come to me and say, “Joe I want to buy a place, but I haven’t decided which neighborhood to buy in.” And the struggle was real. A few clients had everything decided from the color of the hallway walls to the cabinet handles and sometimes which three square blocks they wanted to look at. 

But other clients were occasionally looking at properties in areas as distinct as Union Market/NOMA, Brookland, Logan Circle, and then we would even go across the river to look at a property in Shirlington or the Van Dorn areas of Virginia, which all have their own unique flavor and characteristics.

Sometimes clients would tell me, “I only want to look in Mount Pleasant or Adams Morgan.” Or, “don’t even show me any properties west of this street or south of that street.” My job wasn’t to convince people where to live. It was to just take the parameters they set for me and find as good of a property in that zone as I could, coordinate the showings and, if necessary, offer the strategy.  

One can see that buyers often had more decisions to make than a seller. From a seller’s perspective, the house was where it was, and we just had to make the best of it. But working with a buyer could mean looking at five different neighborhoods, and then being a “thought partner” to help them figure out which were the top two or three areas they had seen, and then further distilling those down into what was available and weighing those options against each other. 

One house could have the dream bathroom but also be located six blocks further from a Metro stop, walkable shopping and dining, and “just too far away from my friends.” Another house could have all the neighborhood options a client was looking for, but was just not in turnkey condition, and would require an additional $30,000 of upgrades once purchased to make it into the dream home they envisioned.  

One activity I often asked buyers to do was to keep an active list in their heads of the properties they liked, and to keep a running rank of the top three. I often encouraged them to bring a notebook along on the journey where they could take notes and write down questions they thought of as they looked. It was an important decision, and sometimes the largest purchase of their lives. Why not take it a little seriously, and take notes? This could often help the buyer later when they felt it was time to decide.  

The point here is, keeping a notebook handy can sometimes help a person with what feels like an overwhelming process. It provides a space to explore how one feels, jot down important details to remember, and then use that to make an informed decision.  


Joseph Hudson is a referral agent with RLAH. Reach him at 703-587-0597 or [email protected].

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