Capital Gains Tax Hike
“The STEP Act”
(Sensible Taxation and Equity Promotion Act)
The White House is circulating a plan to raise $3.5 trillion ($3,500,000,000,000) in tax revenue over the next year to offset the costs of a potentially $4.0 trillion ($4,000,000,000,000) infrastructure plan.
On March 29, 2021, Democrat Senators Van Hollen (Md), Warren (Mass), Sanders (Vt), Booker (NJ) and Whitehouse (RI) introduced a Bill in the US Senate to tax capital gains on certain property transferred by Lifetime Gift or at Death. Currently, the top capital-gains tax rate is 20% with plans to increase this rate.
This Bill would raise around $400 billion over 10 years.
Democrats have been seeking to tax these assets for years. Joe Biden endorsed the idea during his campaign and President Obama previously sought to target this tax.
The proposed retroactive effective date is for transfers after December 31, 2020.
Under current law, if a person dies with appreciated assets (homes, Business, Stock), the heirs don’t have to pay capital gain tax on that increase. This is due to a longstanding feature of the tax code called “stepped-up basis” (the cost basis gets stepped up at death to market value).
Certain exceptions would apply (the first $1 million would be free from tax; principal residence, retirement plans, Spousal, etc). The Bill also includes rules to prevent the use of trusts to avoid the tax.
Stay tuned for more changes.
By: Ken Vanway. March 30, 2021