In early October, Gov. Maura T. Healey signed into law, “An Act to Improve the Commonwealth’s Competitiveness, Affordability and Equity.” This $1 billion tax package is the first major tax cut in Massachusetts in more than 20 years and the first major change to the estate tax law in 17 years.
The Act includes several benefits for taxpayers including:
- An expanded child and family tax credit
- Increases to the rental deduction, senior circuit breaker tax credit, and the housing development incentive program
- A reduction in the short-term capital gains rate from 12 percent to 8.5 percent
Perhaps most notably, the Act increases the estate tax exemption from $1 million to $2 million effective January 1, 2023. And by introducing a uniform tax credit of $99,600, the new law eliminates the “cliff tax.” Previously, estates valued at greater than $1 million were taxed at dollar one rather than being taxed on the excess above and beyond the exemption amount.
The new uniform tax credit effectively doubles the threshold at which estate tax applies. This is particularly beneficial for estates that previously were just above the threshold but paid a hefty tax – for example, a $1.1 million estate in the past paid $38,000 in tax.
While this is a welcome change, some things remain the same. As was the case with the old law, Massachusetts does not allow for portability of exemption between spouses, and the exemption is not indexed for inflation, which is contrary to federal law.
This new law also clarifies the Massachusetts estate tax treatment of real estate and tangible personal property located outside of Massachusetts. The value of real estate and tangibles outside of Massachusetts can still be included in a Massachusetts resident’s gross estate under the new law.
However, the amount of any estate tax due to Massachusetts will be reduced in proportion to the value that the non-Massachusetts assets represent of the gross estate. For example, if the estate tax due on a Massachusetts resident’s gross estate (including non-Massachusetts situs assets) is $100,000 and the value of assets outside of Massachusetts represent 20 percent of the gross estate, the estate tax due will be reduced by 20 percent to $80,0000.
As with a change in any law, reaching out to your team of trusted advisors to learn how it affects you is important. Contact Crestwood today to discuss these and other personal finance topics.
* The information contained in this document is provided by Crestwood Advisors Group, LLC (“Crestwood”) for general informational purposes only. For estate planning advice, consult with your advisors. Crestwood is not a law firm and does not provide legal advice. Crestwood is not a CPA firm and does not provide audit or attest services.
