David Pyke here with a special announcement because this week Senate Democrats proposed a new piece of legislation that would fundamentally alter the rules for taxation of assets received from estates, significantly limiting a current tax benefit known as the step-up in basis. As you know, President Biden has proposed massive spending on infrastructure up to $3 trillion, and he and Democrats in Congress are looking for a way to pay for that. It is interesting in that the opening salvo in what I’m calling Tax Wars 2021 is to propose changing estate tax rules. The step-up in basis allows the write-off of trapped capital gains for assets received by beneficiaries. Currently, that is an unlimited write-off, but this legislation limits that write-off to $1 million. Anything over that would be subject to capital gains taxation when the estate or the beneficiaries sell the assets. So, this is a major change in tax policy.
It is also interesting that the legislation is proposed to be retroactive to January 1, 2021. So, that tells me two things. Senate Democrats are focused on taxing estates and Senate Democrats want to make the legislation effective as early as possible. Now, we don’t have anything yet on the basic estate tax rules concerning either rates or the exemption amount. Currently, most people don’t have to think about estate taxes because the exemption amount is $11.7 million per person. But it has been proposed to half that limitation, but we don’t have actual legislation either from President Biden, Senate or House Democrats. This is something we will continue to watch in these continuing Tax Wars 2021. We look forward to keeping you updated and keeping your estate plan effective.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.
