Horrible news for our kids. Biden wants to get rid of a part of tax law called “stepped-up basis”. Not a rumor. Politifact rates it as “True”.
Here’s a real-world example of what this means.
Say you paid $50,000 for your home some years ago. When you eventually fall off the perch, your daughter inherits it. At that point, the area has gentrified, neighborhood has expanded, new stores and schools, you’ve kept it real nice, it’s worth say $300,000. She’s looking to move in with her husband and kids.
UNDER CURRENT RULES, with stepped-up basis, when she inherits your home your daughter will owe $0.00 in tax. Which makes sense, because you paid tax on every penny you paid for your home, plus property taxes every year for the privilege of ownership. Been there, taxed that.
UNDER BIDEN’S PLAN, on the other hand, your daughter would pay tax on A QUARTER MILLION DOLLARS.
Seriously. $250,000. And it gets worse.
The entire quarter million would fall as her income in one single tax year, so even if your daughter had no other income, for that one year she’d be in the second-highest tax bracket. Hang on a minute, I’ve worked as a tax accountant, let me look it up … OK, Federal Income Tax on a quarter of a megabuck is:
$47,367.50 plus 35% of the amount over $207,350 =
$62,295
Sixty grand. But wait, there’s more. She’ll have to pay state taxes as well. In California that’s $19,996 … for a total of:
$82,291
Eighty grand in taxes, due and payable upon your death. Of course, her inheritance doesn’t include such giant piles of cash, in part because you’ve saved and put money into buying your home in order to give something tangible to your descendants …
So unless she has a rich uncle somewhere, your daughter be forced to sell the family home to pay JOE BIDEN’S EIGHTY-TWO THOUSAND DOLLAR TAX BILL.
This is why I started off by calling this “horrible news”. Joe’s tax plan will cost far too many of our children their family homes, the homes that they grew up in.
Seriously, folks, the left is out there in economic lala land. I listened to Biden’s speech today. It was curious. About the only times the “crowd” of six hundred or so cheered and honked their horns was when he promised “free” stuff—”free” college, “free” debt cancellation, “free” medicine for all, the list goes on and on.
Of course he didn’t mention that “free” means “taxpayer paid”. And he didn’t mention that the Biden tax plan will mean a crushing tax burden for your children, a burden that will force far too many of them to have sell the very family home that you and they have planned for them to live in when you are gone.
Finally, if you think that’s bad, consider a farmer or a rancher who owns hundreds of acres. The farmer has put in thousands of hours improving the operation, plus just raw land values have doubled … their children will be paying taxes on millions of invisible dollars. As a result, Joe’s plan will virtually guarantee the loss of innumerable family farms and ranches, sold to pay Joes Tax.
Care to guess what Biden plans to do with the money that he’s taking from your kids? Yep, you guessed it, something “free”. In this case it’s “free” community college. And for that he proposes throwing our children out of their inherited homes.
Please, please don’t let this happen. A vote for Biden is a vote to impoverish your children and to destroy thousands of family-owned farms and ranches across the US.
Hold your nose if you must, but vote for Trump and the Repubican party, not Joe and the tax-and-riot party … no joke, he’s coming for your kid’s house.
w.
Skating Under The Ice 
W, you didn’t mention the $11.58M federal inheritance tax exemption, which should still be in play for the family house that does not receive the stepped up basis, although it still creates a problem for the small farmer’s over that exemption. Or, does the family home get Joe’s tax in front of the inheritance tax?
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I believe under the Biden plan the tax becomes due when the property is sold by the beneficiary of the decedent. However, as you have pointed out, the tax would be based on the gain from the original acquisition cost and the tax would be due on this income “realized” in the year of sale.
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Would that gain be subject to the same rules as an ordinary home purchase, that is that it would only be taxable if the individual did not use it as their primary residence three out of the prior five years when they sell?
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To my knowledge he does not propose to do away with the exclusion on the first 500K of gain, the current law. I think you are correct concerning the second home.
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Does the USA have an inheritance tax? In Argentina, we have an inheritance tax of 30%. So, in three generations the state becomes the owner of your properties. Back in 1976, one great Minister made another law that allows people to transfer his property to their family for free, no tax to pay, while still alive and still keeping the full use of the property.
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Curious that Biden is trying to score points by eliminating “stepped-up basis”. Why not eliminate the second-home mortgage interest deduction instead?
Who the heck owns two homes anyway?
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Plenty of people in middle class own more than one “home”. They are called hunting camps, fishing camps, summer cottages etc etc. Many structures on farms/ranches are considered multiple dwellings. A man I work for occasionally owns a dairy farm, he has a room above the milk house that sleeps 6 and has kitchen and bathrooms, in PA it is considered a separate dwelling on the property, has another 4 bunk room with bath and kitchen on far side of his farm attached to a machine shed, it is considered a separate dwelling. Owning all this property and equipment and livestock does not make them rich, they are in fact in debt. Joe Biden and Tom Wolff both want to drive them out of business and into poverty as punishment for working all their lives. THAT is what leftist political ideology is all about, punishing everyone who refuses to submit to their anti-human crap.
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The purpose of “driving them into poverty” is, in fact, to transfer property into the hands of creditors.
In a debt based monetary system where money originates from a point zero, money radiates out to the periphery being devalued at every stage of the process by the prevailing rate of interest.
Profit however, necessarily migrates back towards the centre to service debt. However, since interest is owed over and above capital, eventually, though gradually, all assets migrate towards the centre.
This is an arithmetical identity.
In a debt based monetary system, private property can only be momentary. Arithmetically speaking however, the majority will be divested of their property.
This is an arithmetical identity.
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Joe Biden does … he has a bunch of homes from his wealth as a legislator and his wife as a professor.
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Stealing property and collapsing economies, it is all leftists ever do.
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The perfect Leftist plan! 1) Tax inflation and appreciation (most of which is inflation anyway, even if you didn’t appreciate that). 2) Cause inflation.
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Yep, the old inheritance tax forced the break up and sell off of many Midwestern farms. It has been a boon for hobby farmers and other retirees. Of course, moving onto a chunk of rural land and building a house on it increased the value of those retiree properties, raising the value of all nearby rural property. So.. many farmers now need a ‘day job’ to handle the costs of rural farm taxes and operation.
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That happened around Johannesburg, South Africa. Lots of people bought into ‘smallholdings’ or “plotties” well outside the city limits. This meant do-it-yourself water and waste handling, but often the smallholders could get the big electricity supply company to link them up. Such people enjoyed a single house, with a large garden, and rooms for a servant and gardener often enough. (Look up Jeremy Taylor’s song “I’m from the Northern side of town”). Then Jo’burg expanded and included these plots. And reckoned that it wasn’t ‘right’ that such ‘rich’ folk should enjoy the big garden while paying agricultural rates (i.e. local taxes). So, they then classed such properties as “single houses with a large garden” and taxed them appropriately (raising the rates by 300-400%). Oh yes, and you STILL didn’t get water and sewerage, although such items were included in your new rates. The end result? The plot holders sold out to developers, and Jo’burg outer suburbs have now become desolate areas of walled estates of packed two-storey ‘villas’. Looking around from my area, I’m continually reminded of Pete Seeger’s song “Little boxes…”.
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So the work-around would be for kids to not report their that their oldies had croaked.
I can see “Weekend At Bernies” becoming legitimate tax advice.
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Willie Sutton reportedly said he robbed banks “because that’s where the money is.” There’s no way to pay for all this spending without looting the middle class’s home equity and retirement accounts — that’s where the money is. Anyone who actually expects “the rich” to pay is a sucker.
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Tru ‘dat …
w.
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If Biden wins, this will be only a minor problem.
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The only thing Pluggs is going to win is the shuffle board tourny at The Villages.
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Since the Biden Harris platform calls for massive spending, we could expect Jimmy Carter level inflation. This would increase the value of an inherited property and shove more of the value into higher tax brackets. Since these tax plans are coming from the Harris-Sanders wing of the Democrat party, the exclusions may vanish. They need to cover tens of trillions in give aways, so why expect them to leave any of our money or property in our hands?
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Regrettably, “left” or “right” leaning politicians is not what makes the difference.
The difference is made the moment a particular monetary system is chosen over another.
In our particular case, we have opted for a system that is predicated on money as debt.
Whether right wing politicians come to power or their counterparts on the left come to power, the arithmetic underpinning a centralised, debt based, monetary system ensure eventual destitution for the many.
Real change can only be brought about by the modification or the abrogation of the monetary system.
Short of that, any hope & change or making us great again are arithmetically impossible.
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Willis, I’m afraid you are only partially correct. You are correct – if stepped up basis goes away, Daughter inherits it with Dad’s carryover basis of $25,000. However, Dad’s death is not an income tax triggering event.
Daughter will only generate a potential income tax if/when Daughter sells the house. If Daughter lives in the house as her personal residence, Daughter gets to exclude $250,000 of the gain upon sale of the house ($500,000 if married filing jointly).
The fact that you are a little off in describing the facts does not mean that your premise that getting rid of stepped up basis is wrong. Congress has tried this a couple of times before. In 1976, they passed a law providing for it, the accountants rebelled, and it was almost immediately suspended before the change was repealed.
In 2010, we had no stepped up basis, and no estate tax, for a whole year. George Steinbrenner fortuitously died during that year, saving his estate a ton of estate tax, but passing assets at a lower income tax basis.
Another problem with not having stepped up basis is that if you cannot prove what your basis is, it is ZERO. That is a huge problem with carryover basis as you have to prove your income tax basis on assets you inherit from your parents or grandparents when you sell them. That is one of the reasons the 1976 attempt to get rid of stepped up basis failed. Good luck proving what your income tax basis is on an inherited mutual fund, for example.
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The estate tax does the same thing.
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Willis
Sorry, my request has nothing to do with this article. I’m trying to help my wife understand some of the problems with modern climate science.
Some time ago you wrote a post about ocean acidity in very simple terms, which I admit are about all I can understand.
It was-is perfect for a truck driver. I can’t find it on the website. Do yo think you could help me with that so I can refute some of what David Attenborough said last night in a years old TV program on the Great Barrier Reef.
Thanks
Jack
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Jack, I think you might be talking about this post, but if not let me know and I’ll take another look.
http://wattsupwiththat.com/2010/06/19/the-electric-oceanic-acid-test/
Next, there’s an index to my work here.
https://wattsupwiththat.com/2018/01/20/a-new-index-to-williss-posts/#030
And in passing, my thanks to the truck drivers. While the teachers were whining about having to teach mostly immune kids, and the politician were drawing full pay for sitting at home, truckers kept the US moving. Appreciated.
w.
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