Massachusetts Estate Tax Exemption Doubled as Part of Comprehensive Changes to Law

Berid Schutzbank

On October 4, 2023, Massachusetts Governor Maura Healey signed into law comprehensive tax legislation impacting Massachusetts individuals and families. The $1 billion tax relief package is designed to boost the Commonwealth’s affordability and competitiveness.

Most notably, the law doubles the Massachusetts estate tax exemption, from $1 million per estate to $2 million per estate. For estates valued in excess of $2 million, the estate tax will continue to be calculated based on a graduated scale with tax rates ranging from 7.2% and maxing out at 16% for taxable estates in excess of $11 million.

The new law also amends how estate tax is levied on estates valued above the exemption amount. Previously, almost all assets were taxed if the value of the decedent’s taxable estate exceeded $1 million. Going forward, by establishing a non-refundable estate tax credit of $99,600, only assets in excess of $2 million will be subject to the tax, effectively eliminating what was often referred to as the “cliff effect” under the prior law.

The new law also eliminated a potential loophole in the 2022 4% surtax on annual income over $1 million. The new law mandates that married couples who file a joint federal income tax return must also file a joint state income tax return. This portion of the law takes effect January 1, 2024. The remainder of the law takes effect for the 2023 tax year.

Finally, the new law reduced the income tax rate for short-term capital gains (gains realized from the sale of capital assets owned for a year or less) to 8.5%, down from 12%. The long-term capital gains remains at 5%.

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