Posted: March 31, 2021
This past Monday a group of Senate Democrats proposed legislation to eliminate the so-called step-up in basis at death for capital assets such as stocks, real estate and businesses, and instead to tax unrealized capital gains at death.
The new tax, which would be in addition to the estate tax, would exclude the first $1 million of unrealized capital gains from tax, but its unclear if these assets would receive the basis adjustment allowed under current law. The current $500,000 exclusion for capital gains on the sale of a personal residences would remain in effect. In addition, charitable bequests would be exempt from the tax.
The legislation allows taxpayers to pay the tax in installments over a 15-year period for capital gains that apply to any illiquid asset like a farm or business. Still, it’s unlikely the proposal will receive much, if any, Republican support.
The President has also proposed raising the top income tax rate back to 39.6%, from 37%. He would also tax long-term capital gains at the same rate as earned income for households making more than $1 million a year, instead of the current 20% rate that applies to long term capital gain taxes.
We will continue to monitor changes to the tax code and will keep you apprised of developments that could impact you and your estate.