President of the United States of America, Joe Biden has unveiled a plan for higher taxes on inherited homes to support the funding for the $1.8 trillion American Families Plan. The proposal would tax inherited property gains at death, targeting generational wealth transfers.
Biden wants to treat home inheritances like a sale, making the heirs pay for gains that occurred before they received the property. The proposal includes tax exemptions up to $1 million for single heirs and up to $2.5 million for couples, a White House fact sheet outlined Wednesday.
According to President Biden, American tax dollars are going to be used to buy American products, create American jobs. Although the method may be complex for an inherited property without immaculate records, however, other approaches may include a family partnership or limited liability corporation.
Certified financial planner Ken Van Leeuwen, founder and managing director of Van Leeuwen & Company in Princeton, New Jersey said the levy may be a burden for heirs who want to keep the family home but can’t afford the tax bill.
While the median U.S. home sales price is $347,500, the number of transactions exceeding $1 million is growing. Sales of home worth more than $1 million spiked by 81% from February 2020 to 2021, according to the National Association of Realtors.
As reported by CNBC, One popular tactic is gifting a home or vacation property to heirs while living with a so-called qualified personal residence trust. The trust removes the home’s value from an estate and allows the original owner to use the property for a specific number of years.
Another way to save on taxes is by increasing the home’s basis to reduce profit. Homeowners can do that by tacking on the cost of improvements, like a new roof or other property renovations.