A long time tax is about to be eliminated by the current administration. However, this might cause another huge expense for the people in the future.
President Biden is planning to eliminate a long time tax break on inherited property and, if successful, the plan could cost some families tens of thousands of dollars. Democrats have bold plans for free health care, free college and open borders.
Yet this reform, unlike some of the administration’s other proposed tax plans, could hit middle-class Americans squarely in the wallet. Should the rule change, it might even affect you.
To fund the administration’s $3 trillion infrastructure bill, Biden tax plan may try to raise revenue by changing the way capital gains taxes are administered at death.
This plan will change the current one to make the inheritor liable for taxes on all of the gains, including the ones that accrued before they took ownership from not being taxed on the appreciation that took place before they gained control of the asset.
“Government subsidy for inherited wealth,” is what the senators are calling the current framework in a discussion draft of the Sensible Taxation and Equity Promotion (STEP) Act, authored by Van Hollen.
“It is absurd that our tax code allows many of our country’s wealthiest people to get away with never paying a cent in taxes on millions or even billions in capital gains income, while working people pay taxes on every check they receive,” Sanders said.
The plan tries to concentrate the tax among wealthy estates. It would let individuals exclude up to $1 million in unrealized capital gains from tax.
Let’s say someone inherits $6 million in stock originally bought for $4 million. The tax would apply to $1 million of that $2 million gain due to the exclusion.
The U.S. is expected to lose almost $42 billion in tax revenue this year from the exclusion of capital gains from tax at death, according to the Joint Committee on Taxation. It will likely cost $218 billion over 2020-24, JCT said.
It’s unlikely such a proposal would garner much if any support from Republicans, who’ve signaled raising taxes is a nonstarter.
The Tax Policy Center says stepped-up basis allows someone who inherits real estate to only pay taxes on the property’s increased value from the time it was inherited – not from the time it was originally purchased.
“Under current law, capital gains generally are only subject to tax when they are realized upon the sale or exchange of the asset. If the assets are held until death, the gains are not subject to income tax, because the basis is ‘stepped up’ to the fair market value at the time of death,” explained Jessica Jeane, director of public policy & strategic planning at the National Association of Accountants.
This is @JoeBiden. He’s talking at a his rally. He admits that he intends to raise your taxes. Look at the face of the people sitting there. FYI, this is not Russian disinformation, this is #JoeBiden. pic.twitter.com/ncBcRXfeCQ
— Bernard B. Kerik (@BernardKerik) October 29, 2020
Biden made sure that he supports getting rid of the inheritance tax break by eliminating the step-up rule.
Biden proposed providing two years of free community college to all students, in October 2019. His campaign said the plan would be funded, in part, by eliminating the stepped-up basis rule, according to a report by ABC News.