In his State of the Union address, President Obama proposed that the government could raise tax revenues by imposing capital gains tax on the appreciation within a decedent’s assets at death and by raising the tax rate on capital gains to 28 percent.
Under the President’s proposal, bequests and gifts, unless made to charities, would be treated as recognition events. Capital gains tax would be due on the appreciation within those assets at the time of the recognition event. For married couples, no tax would be due until the death of the surviving spouse.
Some capital gains would be exempt from this tax. Under the President’s proposal, capital gains of up to $200,000 per couple ($100,000 for an individual) could be passed without paying capital gains tax. This exemption would be automatically portable between spouses. Couples would also have a $500,000 exemption for personal residences ($250,000 per individual), which exemption would be automatically portable between spouses. Capital gains tax would not be imposed on gains within tangible personal property (other than certain artwork and collectibles). In addition, capital gains tax would not be imposed on inherited small family-owned businesses until those businesses were sold. When sold, taxpayers could spread the capital gains tax from such family business over 15 years.
This proposal was called a closer of the “trust fund loophole” by the President; however, it is not restricted to assets held by trust funds. Instead, the tax would apply to all assets of a decedent, subject to the above exceptions.