Are You Ready for Capital Gains Tax at Death
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..
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Hi Paul, is there anything from a legal standpoint that would help us get around this? I am a one-third owner of land in Texas that my father mother left to my brother, sister, and me. Our parents had set up a trust, and when it expired after their deaths, the three of us established a partnership. All of us are getting up in years, so I’m wondering whether there are any other options that might help us, such as setting up a trust. I don’t know what might be required for that or whether it even would be possible. In any case, I would appreciate your thoughts!