President Biden told a grim fable to push his proposed end to a longstanding tax exemption for appreciated investments passed on to heirs.
Under current law, when someone inherits an asset—like stock, a business, or real estate—that increased in value during the life of the person who owned it, the asset’s tax basis is increased to the fair market value at the date of death. This increased—or “stepped up”— basis means that the person who inherits the asset will only owe capital gains taxes on the gains that accrue after it was passed on to them. All the pre-death increase in value escapes the net of capital gains taxes—although they may be subject to inheritance taxes.
This means that if the heir were to sell immediately, no capital tax would be owed at all. And if they sell later, their capital gains tax bill will be much lower