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Friday, February 6, 2015

New Death Tax Proposal

Have you been following the proposed tax law changes on the Hill? Our President wants to eliminate "step-up basis" at death, which means he opts for "carry-over basis".

When you sell an asset, your capital gain is the difference between your basis and the sales proceeds. The government taxes that gain at 15 to 23.8 percent, and the President wants to increase the maximum rate to 28%  This new carry-over basis regime will effectively add a new tax on a family’s inheritance.

Step-up basis gives heirs a date of death value for the basis of their inherited assets. Carry-over basis will mean a) the parents' house purchase price will become the kids' inherited basis, and b) the parents' basis will be subject to multigenerational record keeping for proof. No proof? Good luck.

The President wants to tax the value of inherited assets, including the primary asset of the family home. Consider this BlumbergBusiness article illustration of the proposed tax change: “There would be a $200,000 exemption plus a $500,000 exemption for homes. For the $1 million home initially purchased by a married couple for $250,000, that would mean $500,000 of the gain would be exempt and a federal tax of up to $70,000 would be owed on the remaining $250,000 in appreciation.” 

That capital gains tax, calculated using carry-over basis, will be owed regardless of whether the family home is sold or simply transferred in-kind to the next generation.


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Attorney Lindsey Warren Duvall assists clients throughout Anne Arundel County and Prince Georges County, including but not limited to Annapolis, Davidsonville, Gambrills, Crofton, Severna Park, Crownsville, South River, Millersville, Waugh Chapel, Odenton, Piney Orchard, Severn, Upper Marlboro, Bowie, Glenndale, Galesville, Gibson Island, Arundel Mills, Columbia, Edgewater, Deale, Harwood, Lothian, Churchton, Shady Side, Cape St. Claire, Broadneck, Arnold, Jessup, Laurel, Linthicum, Mitchellville, Pasadena, and Lake Shore, MD.



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