Biden is expected to eliminate ‘stepped-up basis’
During his campaign for the White House, President Biden said he would eliminate “stepped-up basis,” which allows heirs to avoid capital gains taxes, and he is expected to carry out the pledge this week to pay for an expansion of social programs. Farm groups say elimination of the tax break would impose a burden on agriculture.
Biden broached the idea of eliminating stepped-up basis, a part of the tax code for decades, in October 2019, as a way to offset the cost of two years of free community college for students. Stepped-up basis means that when property passes to an heir, it is assessed at its current value, and taxed at that rate when it is sold, rather than the increase in value from when it was originally acquired by the family.
The White House will “propose eliminating a provision of the tax code that reduces taxes for wealthy heirs when they sell assets they inherit, like art or property, that have gained value over time,” said the New York Times, among several news organizations to report that the provision was part of the tax package.
Axios framed the elimination of stepped-up basis as part of changes to the estate tax. “Biden wants to … value assets when they are passed on to an heir, not at their original cost,” it reported. “The White House thinks that change could lead more individuals to liquidate assets before they die, allowing the IRS to tax them then instead of encouraging families to keep passing on them for more favorable tax treatment.”
Few farm families pay estate taxes but the “death tax” is a perennial target of farm groups. At present, there is an $11 million exemption per person from the estate tax, due to a provision in the 2017 tax cut law. The exemption will revert to $5 million in 2026.