The Reality of how the “Biden Plan” will change the TAX CODE—what to anticipate….

The first consideration of the “Biden Plan” in our Tax Code will be the “Step-Up Basis” elimination. The “Step Up Basis” is the newly assigned cost basis created by using the market value of an asset on the date of death of inherited property. Under the present system the increase or Step-Up in market value of the inherited asset which is then sold using the newly created Step-Up basis eliminates all Capital Gain Taxation. Under the “Biden Plan” this “Step-Up Basis” no longer exists and in the real world this could result in the beneficiary being forced to sell an asset to generate the money necessary to pay the income tax at the much higher tax rate possibly as high as 39.6% as opposed to the present 20% Capital Gain Tax.

Under the “Biden Plan” the ability to defer payment of capital gain taxation until the sale of the replacement property by the utilization of the I.R.S. Code 1031 “like kind” exchange program will be eliminated. Therefore, the loss of a 1031 exchange significantly reduces the incentive of an individual to expand his or her real estate holdings with no immediate tax consequence. Under the “Biden Plan” the Federal Estate tax rate will increase to 45% from the present 40%.

Under the “Biden Plan” the 21% income tax rate, a reduction from the previous 35% corporate federal income tax rate will be replaced with a 28% corporate federal income tax rate. Under the “Biden Plan” the income tax rate for those with income over $400,000 will increase from 37% to a new 39.6% income tax rate.
In addition, under the “Biden Plan” not only will the federal estate tax rate increase to 45%, an increase from the presently existing 40% federal estate tax rate, but also the amount of assets exempt from federal estate taxation will become “only” $3,000,000 a huge reduction in the present “exemption amount” of $11,000,000…and there is bound to be so much more coming down the road as Mr. Biden’s plan works its way into legislation!

Tarta Law Firm NJSteven W. Tarta, Esq. brings more than 45 years of professional experience to his practice, with a sophisticated focus on Estate Tax Planning, Living Trusts and Elder Law.

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