Bob Story, executive director of the Montana Taxpayers Association.
THOM BRIDGE, independent record
ROBERT STORY
Imagine that through hard work, smart decisions, and a little luck you have built a successful business, be it a home business, a farm, or a ranch.
You are also planning to pass this continuation on to your heirs as smoothly as possible. To achieve this, you have invested the time, effort, and money developing an estate plan. Now enter the Sound Taxation and Justice Act (STEP) and all of your planning is out of the window. Since the STEP Act would apply retrospectively from January 1, 2021, you can’t even plan to soften its effects.
What is in the STEP Act and how could it affect you?
The bill is part of President Biden’s American Families Plan and was introduced by a group of progressive senators. The proposal introduces a new tax on property appreciation when it passes from owner to heir. The law would also remove the increased inheritance base that has been a feature of tax law for decades and an important feature of current tax law. Tiered base allows heirs to use the value of an asset at the time of inheritance as the base for taxation when they later sell the asset.
If you bought a farm for $ 100,000 40 years ago and it’s location has development or recreational value, it can now be worth millions. This profit can only be realized if you sell the land and cease your business.
Since that is not your goal, the real value of the property is closer to what it will produce. If the STEP Act comes into force and you bequeath the property to your heirs, the new tax would be owed on the total market value above the purchase price.