Biden’s middle class tax policy might do away with step-up in basis of inherited assets. When people inherit assets currently, they get it as if they bought the asset at the time of the decedent’s death. This is the step up in basis. Basis is like cost. The cost is stepped up to the fair market value of the asset at the time of death. If the heirs sell the asset right away, they will pay no capital gains tax. According to Forbes Advisor, March 31, 2021, there are talks within the Biden administration of doing away with or modifying this tax benefit.
https://www.forbes.com/advisor/investing/stepped-up-basis-biden-tax-plan/
The Treasury Secretary Janet Yellen in her interview with the New York Times in February 2021, hinted that she might be willing to look at stopping step up in basis.
https://www.nytimes.com/2021/02/23/business/dealbook/janet-yellen-dealbook.html
Many, however, do not think that cancelling the step up in basis is going to be practical. Democratic Senator Cory Booker and his co-sponsors have proposed allowing a $1 million per person exemption. Many middle-class families have their wealth accumulated in their homes which, with step up in basis they can pass on to their heirs without hefty capital gains tax. This is one significant form of generational wealth transfer that middle-class families enjoy.
Also eliminating step up in basis would create a record keeping nightmare by requiring all costs associated with inherited properties to calculate capital gains tax upon death.
Elimination or modification of the step-in basis has not occurred and might not occur. But this is something to keep an eye out for because any change in step up in basis law will affect not just the wealthy but also middle-class families.
