A New Estate Tax For The Middle Class?

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There is a proposal before Congress to eliminate the step up in tax basis that happens when someone dies.What does that mean for you?It could mean your spouse and children will need to liquidate assets in order to pay the tax.

Here’s an example of how this might work:

Let’s say you have a home that you paid $200,000 for, and now it appraises for $500,000. That’s $300,000 of capital gain that is locked up in your home.Your tax basis is $200,000 (what you paid), and the fair market value is now $500,000. The difference is your capital gain.

The Existing Rule

The existing rule is that, upon your death, your heirs receive a “step-up” in the tax basis, meaning the tax basis is no longer what you paid, but what the fair market value is on the day you died (call it $500,000).

The problem is that if you have substantial capital gains locked up in a small business or other assets, your loved ones might have to liquidate the business, your home, etc., in order to pay what is a de facto estate tax.Will it pass? Time will tell, but we will definitely keep an eye on it.

See the link to the full article below:

https://www.cnbc.com/2021/03/30/senate-dems-propose-capital-gains-tax-at-death-with-1-million-exemption.html

What can you do about it?

Tax planning should be a consideration in your estate plan, if not a major component. If you believe this new rule may impact your family, give us a call at (832) 835-2180 to schedule a consultation, or go here to schedule online.