Representatives Adrian Smith (R-NE) and Michelle Fischbach (R-MN) sent a May 5 letter to Speaker Nancy Pelosi (D-CA) and House Minority Leader Kevin McCarthy (R-CA) opposing the taxation of unrealized capital gains at death. Signed by more than 130 House Republicans, the letter asks that this tax provision not be used as an offset to infrastructure legislation. The Biden Administration has proposed using it to finance the cost of its America Families Plan.
Currently, when someone inherits assets, they are not taxed on the appreciation that happened before they inherited them. Instead, a taxpayer’s basis in an inherited asset is stepped-up to fair market value. In contrast, the Biden Administration is proposing to tax unrealized capital gains at death.
Notably, Reps. Smith and Fischbach announced their letter with a release quoting NMHC President Doug Bibby:
“Repealing stepped-up basis is not a free lunch for those looking to generate tax revenue and would have significant consequences in the multifamily marketplace,” said Doug Bibby, President of the National Multifamily Housing Council. “Absent stepped-up basis, heirs could inherit an apartment property with a small amount basis and possibly sizeable debt. If they are taxed immediately, the resulting depreciation recapture and capital gains taxes could exceed their ability to pay without selling the asset. Even if funds to pay tax are available, heirs may have little left over to invest in and maintain the property, which could negatively impact the available affordable housing stock.”
NMHC is leading the charge advocating against taxing unrealized capital gains at death. NMHC worked to support a recently released EY Study conducted for the Family Business Estate Tax Coalition finding that repealing the step-up in basis tax provision would cause damage to the Gross Domestic Product (GDP) and a significant decrease in job creation. Importantly, House Ways and Means Republicans highlighted this study in a May 4 press release.
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