The House passed a bill on April 16 that would repeal the estate tax. The legislation is primarily designed as a way for House Republicans to express their support for the elimination of the estate tax. However, prospects in the Senate are uncertain. Because many apartment firms are small businesses, often family owned, estate planning is a major consideration for company principals. A critical part of planning focuses on the estate tax imposed on the transfer of their assets to their heirs.
NMHC/NAA supports the permanent estate tax legislation agreed to in January 2013 as part of the “American Taxpayer Relief Act of 2012.” Under current law, the estate tax features a $5.43 million ($10.86 million per couple) exemption and 40 percent top rate.
Importantly, the House bill keeps stepped-up basis rules so that the tax basis of inherited property is reset to reflect the fair market value of the property at the time of an inheritance. This is key for the multifamily industry because many industry executives’ estates include significant amounts of depreciable real property.
Without these stepped-up basis rules, the tax basis of inherited property can be quite low if the property was purchased long ago and has been depreciated over a number of years. As a result, heirs could inherit an apartment property with no basis and sizeable debt. If they sell it, they will face depreciation recapture taxes and capital gains taxes. This discourages heirs from investing more capital to maintain it, removing valuable affordable housing from the inventory.
President Obama has threatened to veto legislation repealing the estate tax.
- Stepped-Up Basis and Taxation of Unrealized Capital Gains Fact Sheet
- Estate Tax
- Trade Group Coalition Letter to House Ways and Means Committee Opposing Proposed Tax Increases
- Family Business Estate Tax Coalition Letter Expressing Support for Stepped-Up Basis
- Family Business Estate Tax Coalition Letter in Support of Thune Amendment 3106