Benjamin Willis, of Forbes, has made available for download his article, Is Repealing The Tax-Free Basis Step Up Really Dead, published in Forbes. The article begins as follows:
While the first draft of the reconciliation legislation didn’t include Biden’s proposal to eliminate the tax-free basis step-up, which included a $1 million per-person exclusion (in addition to the current capital gain exclusion for a principal residence) and exceptions for family-owned business such as farms, many voices have echoed this sentiment from The Wall Street Journal’s September 17 story, “Democrats Seek Backup Plan on Taxing Capital Gains”: “I don’t think that the Ways and Means proposal is the end of the story for taxing gains at death or eliminating step up.” This logic stems from the last major reconciliation legislation, which was enacted in 2017.
The Senate version of the Tax Cuts and Jobs Act included many large changes absent from the House bill, for example: (1) reducing individual tax rates, including a shift in the maximum rate from 39.6% to 37%; (2) the 20% passthrough deduction under section 199A, and (3) reducing the individual mandate penalty to $0 to dismantle Obamacare. The legislative process is indeed slow and last-minute changes are common.
Given the growing popularity of fixing tax law inequalities that exacerbate the wealth gap and considering how the TCJA played out it, it is far from clear, just yet, that Congress is passing up a chance to close a tax loophole. It would be quite surprising if President Biden’s proposal were in fact dead, but rather it could very well step up out of the tax legislation grave and carryover into the Senate proposal.
Posted by Isabella King, Associate Editor, Wealth Strategies Journal.