Tax Law Topics
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Notice of Increased Real Estate Tax Assessments
Notices of Increased Real Estate Tax Assessments in the City of Philadelphia The Office of Property Assessment, starting in April, has sent owners of commercial and industrial properties in Philadelphia notices of reassessment of property values. This involved a thorough analysis of some of Philadelphia’s most complex and high-valued parcels, including hotels, office buildings, and apartment buildings. Also reassessed were all retail properties, warehouses, commercially-zoned vacant land, and properties with multiple uses. The new property values take effect for Tax Year 2018, with property taxes due on February 28, 2018. Written notices of the new values are being mailed and, for comparison, can be seen at http://www.phila.gov/OPA/Pages/PropertyInformation.aspx . Beginning in Fiscal Year 2018, the OPA will conduct annual reassessments of all 579,000 properties in the city, including residential and commercial. Condo units have been considered undervalued for assessment purposes and most are being increased substantially. Also, residential and commercial properties enjoying the benefit of the 10 year tax abatement will be affected. The abatements apply only to new improvements and there is no abatement on the tax on the land value. OPA has announced that it believes that land in the City is under assessed and these assessments will increase. Whether or not this will be matched by a decrease in assessed values of the buildings and improvements remains to be seen. We at Astor Weiss are staying on top of this situation and are in the process of filing appeals for clients. Please ask your questions and discuss the 2018 substantial increases in real estate taxes and the City Use and Occupancy Tax by calling Ron Glazer, David Mandel or Therese Allison at 215-790-0100. You may have us request a First Level Review (FLR) by filing no later than May 26, 2017. If you are not satisfied with the outcome of the review or decide to skip the FLR process altogether, you may have us file a Formal Appeal with the Board of Revision of Taxes (BRT). Formal appeals are due to the BRT by the first Monday in October (October 2, 2017).
New Jersey Estate Tax Repeal
On October 14, 2016, Governor Christie signed a new law that will eliminate the New Jersey estate tax. Currently, decedents residing in New Jersey with taxable estates exceeding $675,000 may be subject to New Jersey estate tax. With the new law, New Jersey residents who die during 2017 will not be subject to the New Jersey Estate tax unless their taxable estate is greater than $2,000,000. Starting January 1, 2018, the New Jersey Estate tax is repealed. This law does not impact the New Jersey inheritance tax. The New Jersey inheritance tax is based on the relationship between the decedent and the beneficiary receiving the assets from the decedent. Qualifying charities and Class “A” beneficiaries such as a spouse, lineal ancestors, descendants and stepchildren are exempt from the New Jersey inheritance tax. The rate of tax imposed on transfers to other individuals is based on the individual’s assigned “Class.” As a result of this new law, you may want to review your current estate plan in order to confirm that the documents in place will continue to accomplish your goals in a tax efficient manner.
PA Income Taxes and Discharge of Debt
In a recent Pennsylvania Supreme Court case, the court upheld the Commonwealth court’s decision that nonresident limited partners, in a partnership with the sole purpose of investing in property located in Pennsylvania, are responsible for Pennsylvania income taxes on their share of income from a discharge of debt as a result of a foreclosure. Wirth v. Commonwealth of Pennsylvania, PA Supreme Court, Nos. 82 MAP 2012, 83 MAP 2012, 84 MAP 2012, 85 MAP 2012, June 17, 2014. Facts In 1985, a partnership was formed pursuant to Connecticut law (the “Partnership”) for the sole purpose of purchasing and managing the property located in Pittsburgh, Pennsylvania (the “Property”). In total there were 735 limited partners; only 25 were Pennsylvania residents. All of the limited partners were passive investors and did not take part in the active management of the Property. The Partnership purchased the Property in 1985 for $360 million; $52 million was paid in cash and the Property was pledged as collateral to obtain a nonrecourse note for the balance of $308 million. In 2005, the Property was foreclosed on and the Partnership reported a gain equal to the unpaid balance and the accrued, compounded interest, totaling $2,628,491,551. The Pennsylvania Department of Revenue subsequently assessed an income tax against each of the limited partner’s share of the $2,628,491,551 gain. In real estate terms, a foreclosure is a home that belongs to the bank, which once belonged to a homeowner. If you would like to learn more about buying a foreclosed home, you can head to Auction.com. Analysis/Holdings The court first determined that the Commonwealth of Pennsylvania had the legal authority to impose an income tax on the nonresident limited partners because the limited partners had enough “contacts” with the Commonwealth. Next, the court held that the discharge of the nonrecourse debt associated with the foreclosure was a taxable event and subject to Pennsylvania income tax. Therefore, the nonresident limited partners were subject to Pennsylvania income tax on their share of the $2,628,491,551 gain. Lastly, the court held that the nonresident limited partners could not “off-set” their Pennsylvania income with losses from their partnership interests because those losses technically occurred in the state where the limited partner was domiciled. * * * The above case emphasizes the need for an investor in a “flow through” entity, such as a partnership, to stay abreast of the changing tax landscape in Pennsylvania. The income tax, real estate and partnership attorneys located at Astor Weiss Kaplan & Mandel, LLP have over 50 years of experience in assisting our clients navigate through the complex and evolving laws that affect all investors doing business in the Commonwealth of Pennsylvania. Please call David Workman or Daniel R. Levine of our Tax practice group if you would like to discuss how Astor Weiss Kaplan & Mandel, LLP can counsel your business.
Pennsylvania Inheritance Tax
Pennsylvania does not charge an estate tax. However, Pennsylvania is one of the few states that impose an inheritance tax on property owned by a resident of Pennsylvania, and certain property located in Pennsylvania owned by a nonresident. This is different in other locations of course. If you are from Canada you should speak to people who understand that tax system, such as canadiantaxamnesty.ca. Here we will aim to inform on the Pennsylvania system. An Estate Tax is Not The Same as an Inheritance Tax An estate tax is charged on the entire estate regardless of whom the beneficiaries might be. However, an inheritance tax is based on who receives the property, so if you aren’t sure about the difference between an estate tax and inheritance tax, you may want to find a solicitors you can trust to help you make sense of these different terminologies and what they mean. When filing the estate tax return, be sure you have a skilled estate attorney at your disposal. Which Beneficiaries Are Subject To Inheritance Tax? It all depends on your relationship with the deceased. Categories of beneficiaries, their applicable exemptions and tax rates are: Surviving spouses – Any transfers to a surviving spouse are taxed at a zero (0%) percent rate. Charitable beneficiaries – Transfers to exempt charitable organizations, exempt institutions, and government entities are entirely exempt from the Pennsylvania inheritance tax. Class A – Property passing to grandparents, parents, descendants (including natural descendants, adopted descendants and step-descendants), and an un-remarried spouse of a child is taxed at four and one-half (4.5%) percent. This class may be entitled to a $3,500 family exemption from the Pennsylvania inheritance tax. Class A1 – Property passing to brothers, half-brothers, sisters, half-sisters, and persons having at least one parent in common with the decedent, either by blood or by adoption, is taxed at twelve (12%) percent. Class A1 beneficiaries do not receive any exemption from the Pennsylvania inheritance tax. Class B – Property passing to all other beneficiaries is taxed at fifteen (15%) percent. Class B beneficiaries do not receive any exemption from the Pennsylvania inheritance tax. Minor children – For deaths occurring on or after July 1, 2000, transfers from the estate of a child age 21 or less to the child’s natural parent, stepparent, or adoptive parent are taxed at a zero (0%) percent rate. Exemptions for Farms and Family Owned Businesses The Pennsylvania legislature also has exemptions for certain kinds of properties. Farms are exempt from the inheritance tax, as long as the land is inherited by the immediate family and the land continues to be used for agriculture for the future 7 years. Recently, the Pennsylvania legislature has also exempted family-owned businesses if certain requirements are met. As laws keep changing and evolving, it is important to consult with an experienced estate attorney. Many people wonder whether you can take on a loss can be taken on an inherited trust, they should visit sjclawlib.org for more information. Filing the Tax Return The Pennsylvania inheritance tax return is a complex document requiring in-depth information and schedules where the transferor’s property and liabilities are listed. In addition, different tax rates apply to different beneficiaries. Therefore, it is imperative that you have an experienced estate attorney ready to guide and support you throughout the procedure. For more information, contact us at 215.790.0100 or email us at firstname.lastname@example.org. You can also visit our website www.astorweiss.com.