Do you own a second home out-of-state? A lake house in Maine or New Hampshire? A condo in Florida? Under the new Massachusetts estate tax law, how will this out-of-state property be treated?
In our recent post about the new Massachusetts estate tax law, we discuss:
- The changes brought about by the new law;
- How to calculate the estate tax, and
- How to use estate planning to reduce or eliminate Massachusetts estate tax exposure.
Changes to Massachusetts Estate Tax
The new estate tax law ushered in some welcome changes for deaths occurring on or after January 1, 2023, including:
- An increase to the threshold/exemption amount from $1 million dollars to $2 million dollars.
- A new $99,600 credit (a dollar-for-dollar reduction in tax owed) was put into place to ensure that only estates OVER the $2 million dollar threshold are taxed.
How Out-of-State Real Estate is Handled Under the New Massachusetts Estate Tax Law
Not all of the changes to the estate tax law are positive. One of the concerning new changes surrounds treatment of out-of-state real estate. Under the old law, a Massachusetts resident passing away possessing out-of-state real estate would not be taxed on that property, nor would it be included in determining whether that estate would be taxable.
Our understanding of the way the new law written however, is that out-of-state property will be included in determining whether an estate is taxable, but that the estate tax owed will be reduced proportionately by the value of the estate property located outside of Massachusetts.
Let’s take a look at a couple examples to illustrate the difference between the old law and new law:
Example under the old law:
Assume a Massachusetts resident who passed away in 2022 had Massachusetts assets totaling $850,000 (bank accounts, life insurance, house, etc.). This person also owned a house in New Hampshire worth $300,000. Since this individual passed away in 2022, the old estate tax law applies. Under the old law, if the estate exceeded the $1 million threshold by even $1, it would have been taxed. However, since under the old law, the New Hampshire house did not count toward the Massachusetts estate tax exemption threshold, no estate tax would be owed. The total value of this estate for Massachusetts estate tax purposes would be $850,000 despite also having $300,000 in out-of-state real estate, for a total net worth of $1,150,000.
Example under the new law:
Assume a Massachusetts resident who passed away in 2023 had Massachusetts assets totaling $1,700,000 (bank accounts, life insurance, house, etc.). This person also owned a house in New Hampshire worth $700,000. Since this individual passed away in 2023, the new estate tax law applies. Under the new law, the New Hampshire property is now added to the $1,700,000, and the estate’s total assets are now $2,400,000; $400,000 over the $2 million dollar estate tax exemption amount. The result is the amount over the $2 million dollar exemption amount will be taxed, but any estate tax owed will be reduced proportionately by the value of the New Hampshire property.
For a personalized review of your current estate, and to review whether proper planning can help reduce or eliminate your Massachusetts estate tax exposure, schedule a free consultation to discuss estate planning options today!
No information in this blog post is to be construed as, nor is intended to be, legal or tax advice. Consult with competent legal counsel and/or tax professionals prior to taking any action. Do not rely on any information contained in this blog post as the law changes from time-to-time and this blog post may not be updated to reflect those changes.
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