With each year —and each new administration—come new tax plans and new proposals. However, this year, President Biden is proposing a major tax change in terms of a “death tax,” that could greatly affect your estate plan.
Proposed Changes
President Biden’s proposed tax plan could eliminate the loophole that currently allows Americans to escape taxation on their wealth by setting it up as an inheritance for their heirs. The proposed tax plan would also increase capital gains from 23.8%—at least for most estates—to 40.8%, which is higher than the current maximum estate tax of 40%.
In addition to these inheritance tax increases, Biden’s tax plan aims to eliminate the carry-over-basis. Currently, heirs do not have to pay capital gains if they sell inherited property (for example, a house, a stock portfolio, etc.) for its appraised value. If they sell it for more than the appraised value—for example, they sell a home for $300,000 when its appraised value is $250,000—there would be long-term capital gains tax on the $50,000 overage. However, with Biden’s proposed changes, the heirs would be taxed on all capital gains since the original time of purchase. So if the inherited house was originally purchased for $50,000, the heirs would be taxed capital gains on the $200,000 at 40.8%, thus making death a taxable event.
The Takeaway
While Biden’s proposed “death tax” could be costly to your estate plan, it has not been passed yet by Congress, and only remains a proposal. If this new tax plan is passed, we would recommend speaking with your financial advisor and your estate planning attorney sooner rather than later. Speaking with your estate planning attorney as soon as possible can help your estate planning team implement strategies to save your beneficiaries money in the long run.
If you have questions about the proposed “death tax” and what this could mean for your estate plan, then contact Miller Estate & Elder Law at (256) 472-1900 or register for one of our free estate planning workshops.
