Biden’s Tax Plan Explained



I thought what we could do here is talk a little bit about some of the proposals that, uh, Biden is, or president Biden is talking about things that he would like to do. And some of these proposals they’re on his list. Some of them might be on the houses. You know, the, the Democrats in the house, they have kind of their lists, their wishlist, if you will, the senators do so, this is kind of a partial listing of what they want to do. So, and how it affects by the way, the average person. Now, of course they do, I didn’t write this down, they do want to increase the tax brackets for people making over 400,000 and well fine. Let them do it, whatever, but these are four different things they’re talking about that could certainly affect you personally. So first, step up in basis, I’m going to describe what step up of basis is and how it’s going to affect you in a minute, but essentially what they want to do.


They want to get rid of it and that can affect you, and I’m going to show you how. Next 1031 exchanges, for those of you who invest in real estate. So there’s a lot of people, they buy rental homes and the idea is they hold those rental homes for a while. They sell them for a gain, but they don’t want to pay tax on the gain. So what they’ll do is they’ll use something called internal revenue code 1031. And what that allows those people to do is transfer that gain into a new property. So sell a house for a profit, buy a different house, and that way they defer the capital gains tax. And again, boom, they want to get, they really want to get rid of that one. That’s something that they really want to get rid of. Next capital gains. Right now, capital gains are basically 15% and they could go as high as I think it’s 23.8% with some different, you know, with different penalties and such, if you have that, they’re really, really big, but somewhere between 15 and 23.8%, I believe the numbers are. Not, they want to increase those capital gains. They want to have those capital gains. I mean, they’d like to get this up into like 43.4% land, something like that, you know, for large capital gains. So they’re looking to increase the tax on capital gains and then finally estate taxes. I don’t know if you’re aware of this, but today each person, what you can do is you can leave. I think it’s 11.7 million. I might be a little bit off, but right around that 11.7 million to anybody you want after you die. And if you’re married, you take that times two. That’s like, wow, 23.4 million or something. I mean, gosh, how many people have that kind of money? Right? Anyway, what they’re talking about doing, they want to reduce the exemption to like 3 million, three and a half million.


The net effect is for a lot of people, suddenly their kids, your children are paying a estate tax and those estate tax brackets they’re right around 50% tax, right? So a lot of ways that you can be affected, your children can be affected by these additional taxes. So I told you, I promised you that we talk a little bit about the step up of basis. Like what is step up of basis and how might that affect you? And you can tell, this is my best attempt at drawing a house. I’m clearly no artists, but I can kind of draw boxes anyway. What’s going on here? Let’s imagine this scenario. Let’s imagine your parents own a house. And let’s imagine they bought that house it’s for $150,000. And they bought it like 25 years ago. And we’re going to pretend for this little example that you are an only child.


So you’re an only child and they die and you get the house. The problem is they bought it for 25 years ago for like $150,000. So today that same house, when you, right here, when you inherited it, it’s worth maybe 550, right? So there, if you do the math 400,000 of gain, that’s what you’ve got now in the current tax code, you get something called a step up of basis. So what does that mean? That means that when you receive that property, the value that it is that when you receive it 550, that’s your new basis. And what that means is if you sell it for 550, well, it’s, it’s like you paid 550 for it and you sell it for 550. There’s no tax at all, none at all the same, by the way, holds true. If your parents own a stock, if they invested 150,000 in say, I don’t know, ABC stock, you know, Facebook stock let’s use that.


They die. It’s worth 550. You received the stock for 550. If you sell it, you don’t pay any tax because your basis or your cost basis is what we’re really talking about. Your cost basis is not your parents’ cost basis. It’s what it was worth when you received it. And that’s pretty nice, but what are they talking about? I said, over here, what’d they say? I said what they want to eliminate that. So what does that mean to you? What it means is let’s imagine going back to our house in this scenario, when you inherit that house, what they want in Washington DC, is they want you to pay tax on a $400,000 gain. And by the way, remember, what did we say? They want to increase capital gains from where they are today and increase the rates. So not only do they want you to pay tax on something, you don’t have to pay tax on now, but they want to increase the rate at which you owe that tax.


So you get kind of double whammied. That’s what it means to eliminate step up of basis at death. And it also increasing capital gains rates would impact that as well. So these are some things that they’re talking about now, which of these are actually going to become law. I don’t know. I mean, we don’t know, but I can tell you this odds are incredibly high. That at least a bunch of these are going to be come the new law. I mean, they’re going to pass some of them because let’s be honest. They own the pres-, the Democrats own the presidency, the Senate and the house. I mean, they control the whole way through so they can push through whatever they want. And you know what, if these are the things they want, there’s a pretty good chance it’s going to happen. So you need to start thinking, how are you going to plan, right? How are you going to plan so that these types of things do not affect or impact you in a significant way.

One thought on "Biden’s Tax Plan Explained"

  1. Hymie Pogir says:

    Mr. Reece this update was most appreciated. Thank you..

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