Several progressive members of Congress, led by Senator Chris Van Hollen (D-MD), above, on March 29 proposed legislation that would tax appreciated and unrealized capital gains when property is transferred at death or by gift. Meanwhile, Senate Republicans on March 9 reintroduced legislation to repeal permanently the federal estate and gift tax, commonly known as the “death tax.” (Wall Street Journal, March 29 and Fox Business, March 11).
- Taxing gains at death would mark a major departure from longstanding current law in which the basis of property is “stepped up” to its fair market value when a taxpayer dies or transfers property by gift.
- Under the Sensible Taxation and Equity Promotion (STEP) Act, capital gains taxes would be applied at the time of inheritance transfer, with a $1 million per-person exemption. (Van Hollen news release, March 29 / one-page bill summary / section-by-section explanation)
- A House companion bill (H.R. 2286) was introduced by Rep. Bill Pascrell (D-NJ), a member of the House Ways and Means Committee. (Pascrell news release, March 29)
- President Biden backed elimination of stepped-up basis during his campaign. (CNBC, “This is how Joe Biden will tax generational wealth transfer,” March 13 / CNBC, June 30, 2020 / ABC News, Oct. 8, 2019)
Why It Matters
- Repealing stepped-up basis and treating death as a taxable event would be particularly burdensome for real estate owners because of the illiquid and indivisible nature of real assets relative to a holdings like a portfolio of publicly traded stock.
- The legislation could force owners to sell properties if no cash income is available to pay the tax. The bill would also pull capital out of real estate markets at a time when it will be needed to help repurpose existing properties in the post-pandemic era.
Estate Tax Repeal
- Senate Republicans on March 9 unveiled the Death Tax Repeal Act of 2021 (S. 617) to permanently repeal the federal estate tax. The legislation, introduced by Sens. John Thune (R-SD.) and John Kennedy (R-LA) would eliminate the federal tax levied on estates worth more than $11.7 million after the death of the owner. (Sen. Kennedy news release)
- Reps Jason Smith (R-MO) and Sanford Bishop (D-GA) on March 10 introduced companion legislation in the House. (Rep. Smith news release)
- The Real Estate Roundtable, as part of the Family Business Estate Tax Coalition (FBETC), this week wrote to Sen. Thune and the House co-sponsors in support of S. 617 and the permanent repeal of the estate tax. (Coalition letter, April 2)
- The letter states that the FBETC “... supported the temporary estate tax relief in the Tax Cuts and Jobs Act (TCJA), which doubled the exemption to approximately $11.7 million for tax year 2021 and indexed future increases for inflation through 2025. However, without further congressional action, the temporary increase in the exemption amount will expire… repeal is the best solution to protect all family-owned businesses from the estate tax.”
Proposals to raise the tax burden on appreciated property at death could be considered in the next wave of domestic economic legislation. President Biden is expected to roll out more tax proposals aimed at upper-income taxpayers over the next few weeks.
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