The impact of Biden’s tax proposal on the inherited real estate

President Joe Biden plans to increase taxes on inherited real estate. Under current law, heirs have an opportunity to pay no taxes on inherited property gains until they sell the asset.

The price of an inherited estate is adjusted to its market value on the day of death. If the heir decides to sell this asset, they only pay money on profits calculated from the day they inherited it. This is the so-called step-up basis provision. It allows taxpayers to save money if they decide to sell the inherited property.

Biden’s proposal aims to treat real estate inheritance like a sale. Heirs would have to pay tax on the unrealized gain. For example, you inherit a house that is currently worth $2 million but was originally purchased for $500,000. As the heir, you will owe capital gains tax on $300,000 of the $1,5 million profit.

Biden’s inheritance tax plan allows tax exemptions up to $1 million for individual beneficiaries and up to $2,5 million for married couples.   

Resources:

“Biden’s plan for inherited real estate may impact more people than just the wealthy,” by Kate Dore (CNBC, 2021)

“All About the Stepped-Up Basis Loophole,” by Eric Reed (smartasset, 2021)

“Impact of Biden’s Tax Reform on the Real Estate Industry,” by Emma Ewing, Robert Cole (ksm, 2021)