Biden’s plan to eliminate the inheritance basis step-up is a big deal!
I am not sure you could call this “under the radar” because it has gotten plenty of attention, but Biden’s plan to eliminate the basis step-up in inherited assets could affect far more Americans than a return to the 39.6% top tax bracket. What is the big deal?
Historically, inherited assets have received a step-up in basis in the hands of the recipient. For example, if you inherit your grandmother’s home for which she paid $50,000 that now is worth $500,000, your basis in that home is $500,000. What that means is you could sell the home for $500,000 and pay zero tax.
Under Biden’s plan, inherited assets over $1 million ($2.5 million for married taxpayers) would be subject to capital gains. Assuming our recipient in the example above inherited total assets exceeding one of the exemption thresholds, that capital gain would be $450,000. Whoa!
I have more questions than answers at this point, and I think it is way to early to push the panic button as I am not yet certain this provision has the votes necessary to make it to the President’s desk. However, this has the potential to be a BIG issue for a LOT of taxpayers.
Here is an informative read from Accounting Today on the topic – I will keep you posted as I learn more. As always, please feel free to give me a call or send me an email if you have a particular situation that you would like to discuss.