Kiddie Tax Age Limit Increased

The Kiddie Tax age limit increased in 2008 to apply to children through age 18 and full-time students through age 23. The prior rules impacted children's investment income through age 17. The Kiddie Tax only applies to unearned income, not wages, and it does not apply to students over age 18 if they are providing at least 50% of their own support with earned income.


Expansion of $500,000 Capital Gains Exclusion for Home Sale:

A surviving spouse may now exclude from capital gains taxation up to $500,000 of gain on the sale of a home if the sale is made within 2 years of the date of death of the first spouse. Before 2008, the sale had to occur in the calendar year of the first spouse’ death in order to exclude more than $250,000 of gain from taxation.

To qualify for the exclusion, the home has to have been owned by both spouses, and used by both spouses as their primary place of residence, for at least two of the five years prior to the first spouse’ death, and they cannot have claimed the exemption in the prior two years.

This change, which was enacted on December 21, 2007 to take effect January 1, 2008, is most important where the home had be transferred to the surviving spouse prior to the death of the first spouse. (If the home had been jointly owned at the time of death in a community property state like Washington, the surviving spouse gets a new tax basis in the property equal to its fair market value on the date of the first spouse’ death. This means the house could be sold with little or no taxable gain.)
 

Medicare:

The following are the 2008 Medicare premiums, deductibles and co-payments for the Medicare program:

Medicare Part A annual deductible will increase from $992 to $1,024

Medicare Part B annual deductible will increase from $131 to $135

Medicare co-payments for nursing home care will be $128 per day for days 21 – 100

Medicare Part B premiums will now be calculated on a sliding scale based upon annual income.  Premium will be increased from $96.40 to $238.40 depending upon income reported on the beneficiary’s tax return.  Premiums will be $96.40 for individuals filing an individual income tax return with income of less than $82,000 or a joint return with income of $164,000 or less.  Premiums will be $122.20 for individual filers with income between $82,000 and $102,000 or joint filers with income between $164,001 and $204,000.  Premiums will be $160.90 for individual filers with income between $102,001 and $153,000 and joint filers with income between $204,001 and $306,000.  Premiums will be $199.70 for individual filers with income between $153,001 and $205,000 and joint filers with income between $306,001 and $410,000.  Premiums will be $238.40 for individual filers with income greater than $205,000 or joint filers with income greater than $410,000.  (There is a separate chart for married beneficiaries who file a separate return and live with their spouse at some point during the tax year.)

Special Needs Trusts

 The IRS ruled in a private letter ruling that a disabled person could transfer an inherited IRA into a grantor "Medicaid pay back" special needs trust without triggering the deferred income taxes in the IRA account.  PLR 200620025.  http://www.irs.gov/pub/irs-wd/0620025.pdf

Medicaid

 For Medicaid applications submitted on or after October 1, 2007 the divisor to calculate a transfer of assets penalty has been increased from $199 per day to $206 per day.  On a monthly basis the divisor has been increased from approximately $6,000 per month to approximately $6,250 per month.

 Washington has now been implementing its new transfer of assets rules for about a year.  Washington implemented portions of the Deficit Reduction Act effective for transfers made on or after May 1, 2006.   The new transfer of asset rules are very different that the prior rules and much more complicated.   If you have been making transfers based upon legal advice you received prior to May of 2006 you should contact your attorney immediately to get updated information.