Biden’s new tax proposal could hit estates hard
June 9 – Estate planners are feeling the crunch of President Biden’s tax proposal because it would eliminate what’s known as a stepped up tax basis when someone passes away.
As an example, when you inherit property from someone who dies, it’s valued based on what it was worth when the person passed away. Under this new tax proposal from President Biden, that goes away and you would actually assume the cost basis of the person who died.
Attorney Clint Barkdoll explained, “For example, let’s say your rich uncle had a thousand shares of Apple stock that he bought in 1980. Under the current law, you inherit those based on what they’re worth the day he dies and there’s no capital gains taxes, that’s your new basis moving forward. Under this proposal, if you inherit those same thousand shares, you assume his 1980 cost basis, you may have capital gains taxes on shares that are now worth millions of dollars even and you’re going to have to pay the full tax on that. That’s one of the big areas.”
If this law comes to pass, a number of estate planners are saying they are going to look quite seriously at gifting or transferring assets before death to avoid these possible really serious tax penalties.
Indeed, News Talk 103.7FM had a call on the Saturday morning show about this very thing. The listener wanted to move his land into his children’s hands now because he was concerned about the tax burden.
Barkdoll said, “There are ramifications on all of these things, even gifting things now could have capital gains tax implications down the road. It depends on the nature of the asset. It depends on what your own cost basis would be. The Biden administration is getting a lot of push back on this.”
The administration is also looking at lowering the federal exemptions for the estate tax.
Barkdoll explained, “Estate taxes have largely been eliminated at the federal level. There’s now an exemption for a married couple of roughly 11 million dollars but again under some of these new proposals that would reset back down to as low as a million dollars, which would capture a lot of estates and anything over that amount would be subject to a federal inheritance tax.”