This week’s theme is: Biden’s tax plan impact on investors 

Today, I’m talking about the proposed tax changes to your inheritance. Under current law, inherited assets receive a step-up in basis as of the date of death. So for example, let’s say that your mom knew Steve Jobs and she invested a few thousand dollars in his quirky startup. Well, come to find out 35 years later, her little investment is now worth millions. 

If your mom died today, she has a massive gain in the stock. The stock is worth millions so her gains would be millions and she would pay upwards of 23% of her gain in taxes if she sold her stock before her death. If she waits until she dies and doesn’t sell the stock, the gains are wiped out, and now the new cost basis in the stock is whatever Apple’s stock price was the day she died. So if you sell the stock the very next day, your gain amount and taxes owed would just be the difference in price from the day she died to the day you sold it. 

Under the proposed tax change, this step up is wiped out, so all those gains get passed to you and now you owe a boatload - likely millions in tax - if you sell the stock. 

This change will have the most impact on any greatly-appreciated inherited assets — such as stocks or real estate or a parent’s home. Any asset that was bought long ago and likely has a big gain - that’s where it will be felt the most. 

Like all other tax policy changes, this will definitely impact behavior. Depending on the circumstances, some older Americans may decide to sell part or some appreciated assets to eat some of the tax on the gain themselves rather than holding until their death. It will be interesting to see what happens on this one. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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