President Joe Biden has unveiled a plan for higher taxes on inherited homes to help fund the $1.8 trillion American Families Plan.

The proposal would tax inherited property gains at death, targeting generational wealth transfers. 

How Boston real estate inheritance tax works now

Currently, heirs may defer taxes on inherited home gains until they sell the property.

They also secure a so-called “step up in basis,” which adjusts the home’s purchase price generally to the value on the date of death.    

According to the Joint Committee on Taxation, the current law saves taxpayers $41 billion per year.

Pres. Biden’s Real Estate Plan

By comparison, Biden wants to treat home inheritances like a sale, making the heirs pay for gains that occurred before they received the property.  

This change may deliver a bill for capital gains taxes at death.

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.

For example, let’s say someone inherits a $1.5 million family home purchased for $300,000. That person may owe capital gains tax on $200,000 of the $1.2 million profit.

Boston Real Estate: Estate-planning Strategies

While Biden’s plan may have a significant impact, there are ways to minimize the bill.

One popular tactic is gifting a home to heirs while living with a so-called qualified personal residence trust. 

This trust removes the home’s value from an estate and allows the original owner to use the property for a specific number of years.

It’s a very common strategy amongst people who have second homes that are appreciated and want to make low-cost gifts to kids.

Boston Real Estate and the Bottom Line

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.   

Other approaches may include a family partnership or limited liability corporation.

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