Most people have been able to pass on assets like a family home without federal tax, but that could be changing.
By Paul Sullivan
Under current rules, the federal estate tax won’t ever affect you unless you’re quite wealthy. But that could change rapidly, even if you are far from rich.
Proposals under consideration by President Biden could extend the tax to millions of people. That could happen in two ways: by raising rates and lowering qualifying thresholds on estates, and by increasing the liability of people who inherit and sell any assets.
Together, these changes could raise money from the truly wealthy while also imposing a levy on vast numbers of people who inherit assets like a modest family home.
Inheritance taxes are paid by the estate of a person who has died. While many states have estate taxes with lower asset thresholds, right now, a married couple would need an estate of more than $23 million to even start worrying about federal taxes on it.
But as a candidate, President Biden spoke about several possible changes to the estate tax that could affect far more people, and in the process, raise tax revenue. One of those changes would end a tax shelter that many people have taken for granted.
Known as the “step-up in basis at death,” this provision erases all of the capital gains in a deceased person’s portfolio and values everything at the date of death. If the step-up in basis were eliminated, inheritors would have to pay capital gains whenever they sold the assets, including millions of dollars worth of stocks or a family home.
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