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What President Biden’s Tax Plan Means for Real Estate Inheritance and Gifting

If you are in line to inherit real estate or planning on passing down real estate to your children, you need to keep an eye on President Joe Biden’s proposed tax plan. Estate taxes could see significant changes under Biden’s proposed tax plan. There are three proposed changes that we need to keep up with.

1. The elimination of the 1031 Exchange

The 1031 Exchange allows for the deferment of capital gains tax when you sell a real estate asset and then purchase a like-kind real estate asset within a specific time period. The 1031 Exchange promotes continued real estate investment by avoiding the high capital gains tax.

2. A large increase of the long-term capital gains tax from 20% up to 39.6% for Adjusted Gross Income over one million dollars

This change will result in a significant increase in long-term capital gains tax that you will be required to pay.

3. The elimination of the step-up basis for evaluating an inherited real estate asset

Currently, your real estate asset is valued at the current market value at the time of your death which avoids practically any capital gains. By eliminating the step-up basis, your real estate asset is valued at the time of purchase and will likely result in a large capital gain upon selling the asset at current market value.

Many experts do not expect these changes to make it through the Senate in its current form, but we must keep up with these changes and talk with our estate attorneys and CPAs to have a plan on how to deal with these changes if they do pass into law.

Do you need some help with an inherited real estate asset? Give us a call and we will be happy to help get you answers to your questions and determine the best options moving forward.


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