Income, Inheritance and Realty Transfer Tax Impact of Act 13 (signed June 28, 2019)December 30, 2019
This is just a summary and does not include an analysis of every provision of Act 13.
Personal Income Tax:
(Effective for tax years beginning 1/1/2020 unless noted otherwise)
- Qualified Opportunity Zone net gains/losses and dividends – the Pennsylvania tax treatment will mirror the IRS treatment. If the income qualifies for the IRC exclusion from income, it will also be excluded from PA personal income tax.
- Distributions for IRC 529 plans that are excluded from federal income tax under IRC 529(C)(3)(B) are also now excluded from PA income tax.
- The value of an Olympic medal or Olympic monetary prize received from the US Olympic Committee is no longer taxable income. The exemption is limited to Olympic related awards and medals. Effective 7/1/2019.
- A combined fiduciary income tax return is permitted to be filed by the Estate of a decedent and the trustee of a trust established by the decedent. This mirrors IRC §645 to allow a combined return. Previously an election cold be made for IRS reporting but separate returns were required to be filed in PA.
- Paid tax preparers are REQUIRED to sign all PA tax returns and provide their IRS PTIN on the Pennsylvania Return. A $50 penalty applies per return. Note that the PA DOR interpretation is that this is required for all tax returns filed starting 1/1/2020 even though Act 13 says it is effective for tax years beginning 1/1/2020.
Realty Transfer Tax (RTT):
A transfer of real estate subject to an Agricultural Conservation Easement to a “Qualified Beginner Farmer” is excluded from PA RTT. The Agricultural Conservation Easement must be established pursuant to the Agricultural Area Security Law. Qualified Beginning Farmer is defined in the statute and the exclusion only applies if the person has obtained written certification for the PA Dept of Ag to confirming Qualified Beginner Farmer status. It is anticipated that the Certification will have to be attached to the RTT Statement of Value or the deed when no RTT Statement of Value is required.
The definition of Farm Production refers to the Agricultural Area Security Law definition. A detailed definition of Qualified Beginner Farmer is added to the
Pennsylvania Inheritance Tax:
(Effective for dates of death on or after 1/1/2020)
Transfers to (or for the use) of a child who is 21 years old or younger are taxed at a 0% rate if the decedent was the child’s natural, adoptive or step-parent on the decedent’s date of death.
The Dept. of Revenue may begin requiring proof of status in the form of a valid birth certificate for natural and adopted children. For step-children be prepared to supply the natural parent and step-parent’s marriage license in addition to the birth certificate.
Because the statute refers to “for the use” the 0% rate will apply to a trust in which a child age 21 or younger is a beneficiary. This will complicate the filing of Inheritance Tax returns involving a trust that can pay income or principal to multiple children. A Future Interest Compromise will be necessary to determine which portion of the trust is taxable at 0% and which portion is taxable at 4.5% on all trusts involving minor beneficiaries.