Are You Ready for Capital Gains Tax at Death

Paul Neiffer

January 28, 2021

We are starting to see more chatter about assessing a capital gains tax at death (or during life). Both President Biden and Senator Wyden (the likely Senate Finance Committee chair) is pushing for this.

Some of the proposals that we have seen would impose an immediate capital gains tax on marketable securities. A capital gains tax on farms and small businesses would be deferred until the asset is sold. However, this deferral is not free. Interest would likely be assessed based on the amount of deferred tax .

Some people would argue that it is extremely difficult to determine how much granddad paid for the back 40 in 1955. It appears that this "cost" basis could be valued based upon the current fair market value less an imputed "interest" adjustment back to the date of purchase if no cost basis is available.

Also, any transfer to a non-spouse during lifetime would trigger the capital gains tax. There would likely be some type of base amount that would not be subject to the tax and certain items of property would be exempt. Any income tax imposed would be deductible for estate tax purposes.

A step-up in basis in farm assets would occur under this provision, however, the offset is immediate tax in some situations. This is a very complicated process and it may not go anywhere, but you are forewarned that this will be discussed in Congress and there is probably at least a 50% chance that it will happen in some form or another..