Senate Democrats look to crack down on capital gains tax at death

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A group of Senate Democrats are pushing to plug a legal loophole that they say has given heirs an “unfair advantage” in dodging so-called death taxes, as they seek to “tackle the inequality” created by inheritance.

The proposal introduced by Sen. Chris Van Hollen (D-Md.) on Monday seeks to tax unrealized capital gains that are passed down as inheritance.

Under current law, heirs are spared from having to pay capital gains tax on assets — such as homes, businesses and certain stocks — whose value has increased prior to the original owner’s death.

The heirs have to pay tax only after they sell and only on gains accrued after the original owner’s death — creating what’s known as the “stepped-up basis” loophole.

Under Van Hollen’s proposal, up to $1 million in unrealized capital gains would be exempt from tax for an individual, or $2 million per couple.

“For example, if someone dies holding $6 million in property for which they paid $4 million, they would only pay taxes on $1 million of that $2 million gain,” a press release from Van Hollen’s office explains. “If someone dies holding $3 million in property for which they paid $2 million, none of that $1 million gain would be taxable.”

Calling it one of the “largest tax breaks in the entire federal tax code,” Van Hollen said the law as it stands now will allow taxpayers to save nearly $42 billion in 2021, according to estimates from the Joint Committee on Taxation.

“To build an economy that works for all Americans we must tackle the inequality in our tax system,” Van Hollen said in a statement. “The stepped-up basis loophole is one of the biggest tax breaks on the books, providing an unfair advantage to the wealthy heirs every year. This proposal will eliminate that loophole once and for all. It’s time to stop subsidizing massive inheritances for the rich and start investing in everyday Americans.”

Sens. Cory Booker (D-NJ), Bernie Sanders (I-Vt.), Sheldon Whitehouse (D-RI) and Elizabeth Warren (D-Mass.) have also signed onto Van Hollen’s draft legislation.

The senators hope the boost in funds will be used to “support national investments that will benefit all Americans and build a more inclusive economy.”

“The administration has been focused on correcting the sins of the Trump tax plan viewing it as a gift to giant corporations,” a Senate Democratic source told The Post. “They are looking to right the code so it tilts benefits to folks in the middle.”

The death-tax loophole has also allowed 55 percent of the wealth in estates worth more than $100 million to go tax-free, the Maryland senator added.

The top capital gains tax rate is currently 23.8 percent, the Wall Street Journal reported.

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