According to the Analytical Perspectives volume from President Obama’s fiscal 2016 budget proposal, the President will be proposing that transfers at death or by gift should result in the recognition of gain. From the volume:
In the case of a gift, the gain would be taxable on the donor’s income tax return for the year in which the gift was made. In the case of death, the tax would be reported either on the decedent’s final income tax return or on a new income tax return created for this purpose. The proposal would exempt gain on household furnishings and personal effects (excluding collectibles) and allow a $100,000 exclusion of other gains recognized at death (which would be indexed for inflation and would be portable to a surviving spouse resulting in a $200,000 per couple exclusion). In addition, the current law ($250,000 per person) exclusion of capital gains from a principal residence would apply to all residences at death. If any share of a personal residence is bequeathed to a spouse, the spouse would be allowed the use of the first spouse’s exclusion of gain (that is, the $250,000 personal residence exclusion would be portable). The unlimited use of capital losses and carryforwards would be allowed against ordinary income on the decedent’s final income tax return, and the capital gains tax imposed at death would be deductible on the decedent’s estate tax return. Appreciated property given to charity would be exempt from the capital gains tax. Gifts or bequests to a spouse would carry the basis of the donor or decedent, and capital gain would not be realized until the spouse disposes of the asset or dies. The proposal would provide for the deferral of tax payment (with interest) on the appreciation of certain small family-owned businesses, until the business is sold or transferred to owners outside the family. The proposal would further allow a 15-year fixed-rate payment plan for the capital gains tax on assets other than liquid assets such as publicly traded financial assets transferred at death. This proposal would be effective for gifts, deaths, qualified dividends received, and other capital gains realizations in taxable years beginning after December 31, 2015.
This proposal would seem to suffer from the same problem as past proposals for carry-over basis, which is that it requires the determination of the tax basis for assets after the death of the owner.
The President is also proposing that Congress restore federal estate, gift, and generation-skpping tax rates and exclusions to their 2009 levels (meaning an exclusion of $3,500,000 and a top tax rate of 45%).
