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June 2021

Mobile Home Park Owners Could be Affected by Biden’s New Death Tax

President Biden proposes to “eliminate the loophole that allows the wealthiest Americans to entirely escape tax on their wealth by passing it down to heirs.” A White House “fact sheet” claims that “our tax laws allow these accumulated gains to be passed down across generations untaxed, exacerbating inequality”

WSJ reports that the plan would raise the total top rate on capital gains, currently 23.8% for most assets, to 40.8%—higher than the 40% maximum estate tax. It would apply the same tax to unrealized capital gains at death, exempting only the first $1 million ($2 million for a married couple) plus $250,000 for a personal residence.

A hypothetical scenario in which the taxpayer would be affected heavily would be a man who inherited his grandparents land over a decade ago and turned it into a mobile home park for $250,000. The property is now worth $2.5 million and is his only asset. If he dies after the Biden plan becomes law, the estate itself wouldn’t be taxable, but it would be subject to the new death tax on $1 million of the unrealized gain from the land(the $2.25 million appreciation less the $1.25 million in exemptions). His grown children would inherit $408,000 less than under current law. The Biden tax would be based on the value of the asset, not the equity, so the estate would be liable for the full amount regardless of any mortgage outstanding.

Scenarios in which the new death tax would significantly reduce, nearly eliminate, or even totally eliminate the net worth of decedents who invested and held real estate such as mobile home parks, for decades wouldn’t be uncommon.

It is still unclear when or if Biden’s law will make it to congress even with changes.

Credits: WSJ Opinion| By: By Hank Adler and Madison Spach

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