The wealthy may have a whole other reason to dread President Joe Biden’s proposal to overhaul taxes on inheritances: They may have to dig through decades worth of documents to figure out what they owe Uncle Sam.
To help fund his American Families Plan, Biden is proposing higher taxes on capital gains and income for the wealthiest families.
He is also calling for the elimination of a decades-old loophole that allows individuals to inherit appreciated assets at market value with no taxes on the unrealized gain. This tactic is known as the “step-up in basis at death.”
Biden proposes ending this “basis step-up” for gains in excess of $1 million for single taxpayers – $2.5 million for couples – and ensuring that gains are taxed if the property isn’t donated to charity.
Coupled with a bid to raise long-term capital gains rates to 39.6% from 20% for households making over $1 million, wealthy heirs could be in for a pile of taxes.
But determining Uncle Sam’s cut could be difficult for certain assets. That’s because the basis – or the owner’s original investment in the asset – could be hard to track.
“How do you estimate the basis, especially when the person who had the best chance to answer that is deceased?” asked Ed Zollars, CPA and partner at Thomas, Zollars & Lynch in Phoenix.
