Page 29 - BusinessWest June 23, 2021
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Death and Taxes
Proposed Changes to Capital Gains, Estate Taxes Create Headaches
By Jim MOoran, CPA
n April 28, the Biden administration
released its FY 2022 revenue proposals.
Along with raising the corporate tax rate to 28% and the top individual rate to 39.6%, widespread changes have been proposed to the capital gains tax rate and estate tax.
referred to as ‘step-up in basis.’ For gifts made during a donor’s lifetime, the donee receives the donor’s basis in the property. This means the donee’s basis remains the same as the donor’s basis, generally original cost plus any improve- ments. No taxable gain or loss occurs upon the
Fortunately, the Biden proposal would allow a $1 million per-person exclusion from recognition of unrealized capital gains on property either transferred by gift or held at death. The per- person exclusion would be indexed for inflation after 2022 and would be portable to the dece- dent’s surviving spouse under the same rules that apply to portability for estate- and gift-tax pur- poses (making the exclusion effectively $2 mil- lion per married couple). It is important to note, however, in the case of gifts, the donee’s basis in property received by gift during the donor’s life would be the donor’s basis in that property at
the time of the gift to the extent that the unreal- ized gain on that property counted against the donor’s $1 million exclusion from recognition.
Tangible personal property (other than col- lectibles) would also be excluded from the trig- gering of gain. The exclusion under current law for certain small-business stock would remain, and the $250,000 per-person exclusion under current law for capital gain on a principal resi- dence would apply to all residences currently allowed under IRC Section 121 and would be portable to the decedent’s surviving spouse, making the exclusion effectively $500,000 per
Taxes
Continued on page 31
 “Under the Biden administration’s pro- posal, transfers of appreciated property upon death, or by gift, may result in the realization of capital gain to the donor or decedent at the time of the transfer. This
means tax may be triggered at the date of the transfer regardless of whether the property is subsequently sold.”
transfer of the prop- erty. Gain or loss is realized only when the property is even- tually sold.
Under the Biden administration’s proposal, transfers of appreciated prop- erty upon death, or by gift, may result
in the realization of capital gain to the donor or decedent at the time of the transfer. This means tax may be trig- gered at the date of
       Under current federal law, upon death, prop- erty passes to a beneficiary at fair market value, with a few exceptions. This means the benefi- ciary’s basis generally becomes the value of the property at the decedent’s date of death, also
the transfer regardless of whether the property is subsequently sold. This would be accomplished by eliminating the step-up in basis upon death of a decedent and requiring a tax be paid on a por- tion of the value of a gift made.
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