President Joe Biden’s tax proposal removes the “increased base” for wealth transferred after death, a move that “reverses a century of tax law” and “would have far-reaching ramifications for investors” according to Andy Friedman, founder and director of Washington -Updates.
Under Biden’s plan, “unrealized appreciation at the time an asset is donated or bequeathed would be subject to capital gains tax,” Friedman said in a new white paper.
Biden’s proposal “would require a deceased owner of an appraised asset to recognize capital gains and pay taxes on unrealized appreciation in value during the testator’s lifetime,” Friedman said. “The profit would be recorded at the time of death. Similarly, an owner of valued assets transferred by gift would recognize capital gains and pay taxes at the time of the gift. “
The changes would affect income on property transferred by gift after December 31, 2021 and income on property of deceased people who die after December 31, Friedman said.
According to Friedman, a strengthened base “has been an integral part of tax policy for many decades” and “is necessary to avoid inherited assets from collecting both inheritance and income taxes, effectively double taxing them”.
The removal of the tiered base presents challenges. “Recognition of the gain on gifted assets collects a tax before the donor has to pay the sales proceeds,” Friedman said. “And determining the base of a testator on assets that may have been acquired generations ago can be difficult, especially assets that are not readily traded, such as money. B. Holdings, real estate, art, cryptocurrencies and collectibles. “
Some Democratic lawmakers have raised concerns about Biden’s plan to undo the reinforced base, Friedman said. Even Senator Bernie Sanders, I-Vt., Who enacted a law to reduce inheritance tax exemption to $ 3.5 million and gift tax exemption to $ 1 million, maintains the elevated base in his law, with the exception of fiduciary duties Transfers, Friedman points out.
According to Friedman, Sanders’ bill calls for a progressive inheritance tax rate: 45% for estates up to $ 10 million, 50% for estates up to $ 50 million, 55% for estates up to $ 1 billion, and 65% for Inheritances over 1 billion.
If final tax law provides for the elevated tax base to be repealed, Friedman offers potential planning strategies that he claims will “mitigate the negative impact.” Check them out in the gallery above.