More Changes Coming?
2021 has given us Prop 19, radically limiting the property tax exemption for parent-child transfers. And now we are looking at a new Administration that may want to make changes to the estate tax laws. Reducing the estate tax threshold actually makes sense. The number of couples with a net worth over $23m is very few. Lowering the estate tax to $10m will impact almost none of my clients.
Other possible changes will have much more of an impact on regular middle-class families. Eliminating the stepped-up basis for inherited assets, while undoubtedly impacting the ultra-wealthy who own stock, would also have a terrible impact on regular folks who are inheriting Mom & Dad’s house. Here’s how: If your parents bought a house for $100,000 and it’s worth $800,000 when you inherit it, you don’t pay tax on the appreciation. If you sell the house for $800,000 there would be ZERO capital gains tax. Eliminating the stepped-up basis means that if you inherit the house and sell for $800,000 you would have approximately $700,000 in gain and maybe a $200,000 tax bill! I know this is a cliché, but you may want to let your Congress person know how you feel about this possible change.
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