Paul L. Caron

Monday, July 8, 2013

WSJ: Using a Charitable Remainder Trust to Beat the 3.8% ObamaCare Investment Income Tax

Wall Street Journal:  Doing Well by Giving It Away, by Kelly Greene:

If you're looking for a way to ease the impact of the new 3.8% tax on investment income, charity could be the answer.

The new tax, which took effect Jan. 1 after being passed by Congress in 2010 to help fund the health-care overhaul, applies to the net investment income of most individuals with more than $200,000 in adjusted gross income and married couples filing joint tax returns with more than $250,000.

Only investment income, including dividends, interest and capital gains, above those thresholds is taxed. The 3.8% rate comes on top of other taxes owed.

Congressional researchers and a number of think tanks estimate that 3.5 million families could get hit with the additional levy this year, with the number expected to double to seven million within a decade.

To get around the tax whammy, you could set up a "charitable-remainder trust" with an asset that has escalated in value—such as a vacation home, highly appreciated stock or artwork—and receive annual payments. Whatever is left when you die goes to the nonprofit group of your choice.

Once the property is in the trust, the trust can sell it without triggering the 3.8% tax or any regular income tax. Payments made to the trust's beneficiary—either yourself or another person—would be subject to any tax owed for investment income, but they likely would be made in smaller amounts and stretched over a longer time period.

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