Think the 40% death tax is too high? If Obama gets his way and his budget passes (which has a snowball’s chance in hell), the second death tax in Obama’s $4 trillion budget will reise from 40% to 60%.
The Obama budget calls for a stealth increase in the death tax rate from 40% to nearly 60%. Here’s how it works:
Under current law, when you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent’s original basis. Almost always, the fair market value is higher.
Under the Obama proposal, when you inherit an asset your basis will simply be the decedent’s original basis.
Obama and the progressive liberal Democrats. Screwing American regardless if they are dead or alive.
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| Obama $4 trillion budget creates second death tax |
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Example: Dad buys a house for $10,000. He dies and leaves it to you. The fair market value on the date of death is $100,000. You sell it for $120,000. Under current law, you have a capital gain of $20,000 (sales price of $120,000 less step up in basis of $100,000). Under the Obama plan, you have a capital gain of $110,000 (sales price of $120,000 less original basis of $10,000).
There are exemptions for most households, but this misses the larger point: the whole reason we have step up in basis is because we have a death tax. If you are going to hold an estate liable for tax, you can’t then hold the estate liable for tax again when the inheritor sells it. This adds yet another redundant layer of tax on savings and investment. It’s a huge tax hike on family farms and small businesses.