Biden’s Tax Plan Proposal

Biden has proposed doing away with the step-up basis treatment which would create a large tax bill for heirs that receive assets through probate.

In most cases, assets that passed to beneficiaries through a will, like a home or stocks, have gained in value since the deceased purchased them. These gains in value are called capital gains, and when the assets are sold, the seller may owe capital gains taxes on the appreciated value minus the original purchase price.

At present, Federal estate tax law allows for a “step-up” in the basis of transferred assets so that those appreciated assets are not subject to both the capital gains tax and the estate tax at the same time. For an explanation on step-up basis read our article here. Under Biden’s tax plan, he’s proposing to eliminate the step-up basis treatment on estate assets upon death.

For families with appreciated real estate assets the repealing of the step-up in basis upon death creates a significant motive for tax planning. To avoid a potentially large tax bill, strategies such as like-kind exchanges or contributions to partnerships or real estate investment trusts (REITs) can be employed.

These transactions allow tax-deferred transfers but carry over the transferred realty’s depreciated tax basis to the real estate, partnership interests or REIT shares received for the exchanges or contributions. Any unrealized gain in the original property is reflected in the tax basis of the replacement assets and deferment strategies can continually be used to to avoid taxes on the unrealized gains.

While it’s too early to say for certain how the new administration’s proposals will play out, early planning and preparation will go a long ways to preserve the value of the inheritance for beneficiaries of the estate. If you’re interested in a complimentary assessment, we offer a no-cost consultation with our Estate Planning attorney. We’ll discuss your goals, concerns, and relationships to create a succession plan for your family legacy. To book a consultation, click the link here.