Biden’s New Death Tax Hits the Middle Class While Excluding Certain Wealthy Investors
President Joe Biden’s American Families Plan (AFP) would impose a capital gains tax at death while essentially doubling the capital gains tax rate. With a major exception for large investors, it would make these changes without grandfathering existing unrealized capital gains.
This death tax would likely hit single taxpayers who own their homes more than married couples, because the appreciation of a home is not impacted by the owner’s marital status. A single person with a reasonable mortgage and some modest other capital gains assets at death could have her residence’s value eaten away by the new tax plus the mortgage.
Consider a single woman who has owned a New York apartment, her only asset, for 40 years. Jane has never made anywhere near $400,000 a year, so Biden has promised to not raise her taxes. She has two adult children who are also firmly in the middle class. Like all New York residential property, Jane’s apartment has increased in value dramatically since her purchase after her husband’s death in 1981. And like many widows, she refinanced her apartment to pay for her children’s college educations, for weddings, and for a couple of vacations. Today, her $200,000 apartment has a fair market value of $2,000,000. She has a mortgage of $1,500,000.
A 40 percent capital gains tax at death after the exclusions allowed in the AFP would result in a tax of $220,000. Add the costs of the mortgage, and her children or grandchildren would see their inheritance reduced from $500,000 under current law to $280,000.
Many middle-income Americans who have only dreamed of a year with $400,000 in taxable income would be faced with this pot
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