Skip to main content

Site Navigation

Site Search

global Tax

4 Tax Breaks that High Net Worth Individuals Can Utilize

May 23, 2016

There are a number of tax breaks that individuals in the higher tax brackets can take advantage of to reduce their tax liability, including the mortgage interest deduction and gift tax exemption

There are several tax-saving strategies that high net worth individuals can benefit from significantly. Below we explain how understanding these strategies may benefit you and your family.

  1. Mortgage interest: Interest paid on a mortgage is tax deductible when you itemize your deductions. This tax deduction is available for interest paid on up to $1 million in mortgage debt, and second homes also qualify. The $1 million limit can also be raised to $1.1 million if you have secured a home equity loan or line of credit of $100,000 or more. Vacation homes also qualify for the mortgage interest deduction.
  2. Long-term capital gain taxes: Another aspect of the tax code that can provide significant benefits for high net worth individuals is the tax rate on long-term capital gains. Profits on investments that are sold after being held for longer than one year are classified as long-term capital gains, which are taxed at 20%. If the same investments were held and sold in less than one year, those gains would be taxed as short-term capital gains at ordinary income tax rates, the highest of which is currently 39.6%.
  3. Estate tax exclusions: The Federal estate tax currently applies to estates exceeding $5.45 million, which is known as the “exemption amount.” It is extremely important to have an estate plan, as you want to ensure that the assets you have worked to earn over your lifetime go to the people and/or organizations that are important to you.

    Individuals with estates under $5.45 million would not be subject to any Federal estate taxes. For high net worth individuals whose estates exceed $5.45 million in value, common estate planning strategies include outright bequests to named beneficiaries, the formation of credit shelter trusts, and disclaimer plans which provide your spouse with the flexibility of deciding how much, if anything, should be held in trust at the time of your death.
  4. Annual gift tax exemptions: Individuals can reduce their estate tax liability by taking advantage of the annual gift tax exemption which is currently $14,000 per person. If a retired individual has a $7 million estate, based on the current exemption, over $1.5 million of that estate would be considered taxable if the assets were passed on to his/her heirs. Since there is no limit on the number of individuals that you can gift up to $14,000 to annually, making strategic gifts to family members and friends can substantially reduce the value of your estate over time.

Through strategic tax planning and a carefully designed estate plan, you can benefit from substantial income tax savings over your lifetime while also ensuring that your future heirs will also save money. To learn more about how you can maximize the benefits of these tax regulations contact any member of our Private Client Services Team (PCS) for more information.

Stay informed. Get all the latest news delivered straight to your inbox.

Also in Tax Blog

up arrow Scroll to Top