On Oct. 4, 2023, Massachusetts handed a wide-ranging $1 billion tax reform package deal, Invoice H. 4104: An Act to Enhance the Commonwealth’s Competitiveness, Affordability, and Fairness, which impacts a number of Massachusetts tax legal guidelines, together with the Massachusetts property tax, the short-term capital features tax, the Massachusetts Millionaires Tax and the rental deduction. Listed here are the regulation’s key provisions and influence.
Goal of the New Regulation
This tax aid package deal is meant to make Massachusetts a extra engaging and inexpensive place to reside and function a enterprise and to make the Commonwealth extra economically aggressive with different states.
Key Provisions
The brand new regulation’s key provisions embrace:
Massachusetts property tax: Massachusetts has now doubled its property tax exemption from $1 million to $2 million by offering a $99,600 credit score in opposition to the Massachusetts property tax. This alteration permits decedents to cross as much as $2 million of belongings to non-spousal and non-charitable recipients freed from Massachusetts property taxes. Furthermore, this modification is efficient retroactively and accessible for estates of people who died on or after Jan. 1, 2023. Not like the federal property tax exemption quantity, a decedent’s Massachusetts property tax exemption isn’t “transportable” between spouses.
The brand new regulation additionally addresses different historic property tax points. It eliminates the infamous “cliff” impact by offering that solely belongings in extra of $2 million, relatively than the decedent’s total taxable property, could be topic to the Massachusetts property tax.
Moreover, it clarifies the calculation of the tax with regard to actual and tangible private property bodily positioned exterior of the state. Lastly, no taxes could be payable so long as the decedent’s federal taxable property is not more than $2 million.
Even with this reform, Massachusetts stays considered one of solely 13 states with an property tax and strikes from the bottom exemption quantity to the third lowest threshold for the imposition of an property tax. It’s notable that the brand new exemption quantity received’t be listed for inflation.
In gentle of this modification to the property tax, private representatives or their advisors who’re administering the estates of 2023 decedents ought to assessment or put together their Massachusetts property tax return filings with the elevated $2 million exemption in thoughts. Lifetime gifting, when a part of an general wealth switch plan, has turn into extra engaging for Massachusetts residents who cross with belongings above the $2 million threshold of their federal property.
In case your consumer is a married couple, assessment asset possession to find out if every partner has $2 million that wouldn’t be topic to the marital deduction. Use this quantity to take full benefit of the brand new $2 million exemption quantity on the first demise. Beforehand, this quantity was solely $1 million.
Many property plans are structured to fund a “household” or “credit score shelter” belief with an quantity that may cross freed from federal and state property taxes. Accordingly, assessment present property plans to be sure that any belief of this nature has the right phrases given to mirror the elevated Massachusetts exemption quantity.
When reviewing a plan, keep in mind that absent future Congressional motion, the federal property and present tax relevant exclusion is scheduled to sundown to pre-2018 ranges on Dec. 31, 2025. The federal exclusion after that date is projected to be within the $6.8 million vary per individual after statutory inflation changes. The 2023 federal exemption quantity is at present $12.92 million per individual and $25.84 million per married couple and is topic to indexing for inflation.
Brief-term capital features tax: Starting in 2023, the Massachusetts short-term capital features charge shall be lowered from 12% to eight.5%. Lengthy-term capital features charges stay at 5%. The capital features charge on collectibles, equivalent to gold, stays at 12%.
Massachusetts millionaires tax (MMT): The MMT, which was permitted by Massachusetts voters in 2022 and have become efficient on Jan. 1, 2023, imposes a 4% surtax on Massachusetts taxpayers with annual taxable earnings over $1 million. The brand new laws mandates that starting in 2024, married {couples} are required to file their Massachusetts earnings tax return utilizing the identical submitting standing as they do for his or her federal return. This closes the planning alternative for married taxpayers to make use of married submitting individually (MFS) standing for his or her Massachusetts earnings tax returns, thereby avoiding the MMT on as much as $2 million for a pair, whereas utilizing married submitting collectively (MFJ) for federal functions, which is usually extra earnings tax advantageous. As a result of this side of the tax reform received’t take impact till 2024, married {couples} with taxable earnings in 2023 over $1 million ought to discover the influence of MFS for Massachusetts functions, even when they’re MFJ for federal functions.
Rental deduction: The rental deduction will increase from $3,000 per 12 months to $4,000 per 12 months starting in 2023.
Little one tax credit score: The reform will increase the tax credit score accessible for taxpayers with kids beneath age 13, senior residents and disabled adults, from $180 in 2022 to $310 in 2023 and $440 in 2024.
Enterprise taxation: For firms conducting enterprise in a number of states, the taxation of multi-state enterprise earnings will now focus solely on the share of gross sales sourced in Massachusetts, relatively than additionally factoring in payroll and capital asset location, when making a tax nexus. This laws additionally directs the Division of Income to discover combining an entity stage tax with a tax credit score to assist mitigate the influence of the MMT on particular person taxpayers with pass-through enterprise entities.
Tax credit score refund: Going ahead, if the Commonwealth’s general tax income exceeds the allowable limits and it’s decided that quantities have to be returned to particular person taxpayers, such quantities shall be returned to taxpayers equally (per capita) based mostly on the variety of tax returns filed, and never pro-rata based mostly on every taxpayer’s tax legal responsibility, as has been the case beforehand. This credit score shall be refundable even when it exceeds the precise whole tax legal responsibility of a selected taxpayer. MFJ will rely as two taxpayers for this calculation.
Jody R. King is director of wealth planning, and Aimee Fukuchi Bryant is vice chairman and belief counsel, each at Fiduciary Belief Co. in Boston
