The transfer tax could change inheriting an asset with value into a liability. We go through an example.
This morning I gave a 20 minute talk on President Biden’s tax proposals for the Washington Potato and Onion Association in Leavenworth, Washington before driving to Seattle to catch a flight to Cedar Rapids, Iowa. Tomorrow, I will be part of the team for the Farm Futures Ag Boot Camp. I think this is about my 7th year of being part of this program.
As part of my talk this morning I gave an example of how farmland worth $30 million with a basis of $1 million since Grandpa purchased the property in 1960. At the time of his death, he had a mortgage on the land of $20 million and owned no other property. Since the lifetime exemption is $11.7 million, his heirs will not owe any estate tax. However, his final income tax return will report a gain of $29 million and the estate will owe about $14 million of combined federal and state income tax.
The result is instead of having an asset worth $10 million, the heirs are now upside down by $4 million.
Although this is an extreme example, many situations could be very similar to this. We will keep you posted.