As we approach a new year and await the transition to a new presidential administration, questions have emerged regarding President-elect Biden’s proposed tax plan with respect to estate and gift tax laws. Although currently few details are known about Biden’s tax proposals, here is a summary of two of the most notable proposed changes:
Decrease in Federal Estate Tax Exemption:
Perhaps the most significant change proposed under Biden’s tax plan is a decrease of the federal estate and gift tax exemption. Under current law, up to $11.58 million ($23 million for married couples) can pass to an individual’s heirs and/or beneficiaries free of federal estate tax. Biden has proposed reverting the estate tax exemption to the 2009 limit of $3.5 million.
Elimination in Step-Up in Basis:
Biden’s tax plan has also proposed eliminating the federal tax benefit known as “step-up in basis,” which allows heirs and beneficiaries of inherited capital assets, such as real estate, stocks, and bonds to readjust the tax basis of the asset to date of death value, thus eliminating capital gains. For example, say your parents purchased a house 30 years ago for $50,000.00. When you inherit the house upon their deaths, the current market value of the property is $600,000.00, which would result in a taxable gain of $550,000.00. However, step-up in basis allows you to readjust the cost basis from $50,000.00 to date of death value, resulting in a capital gain of $0.
While it is important to note that the proposed changes are currently purely speculative, now is a good time to review your estate plan to ensure that you and your family are prepared for what lies ahead.
Allyson S. Heller is a licensed attorney at the Law Offices of Tony J. Tyre, ESQ, APC. For more information, please contact our office at (626) 858-9378 or email@example.com.