As the 2024 U.S. presidential election looms closer, both major political parties have established their platforms. In this article, we will take a closer look at the Democratic Party's proposals, particularly in the areas of estate planning, taxes, and retirement.

This analysis will explore four key policy areas emphasized by the Democrats: Estate Taxes, Capital Gains Taxes, the Stepped-Up Tax Basis, and 1031 Exchanges (Like-Kind Exchanges). These tax provisions directly impact wealth transfer, investment strategies, and long-term financial planning for many Americans.

Doden Steps Aside: Kamala Harris Takes the Lead

The first notable shift within the Democratic Party was the decision of President Biden not to seek re-election. After the Democratic primaries, Vice President Kamala Harris was nominated to lead the party’s ticket. Despite this change in leadership, the overall policy priorities remain consistent with previous platforms, especially regarding taxation and estate planning. Although the 2024 Democratic platform may still reflect some remnants from Biden's presidency, the general direction of their policy remains intact.

Estate Taxes: What the Democratic Platform Proposes

The Democratic Party is taking a strong stance against the repeal of the estate tax, also known as the "death tax." Their platform emphasizes the need to retain estate taxes to prevent further wealth concentration among the wealthiest 0.1% of Americans. Democrats argue that eliminating the estate tax would enable the ultra-wealthy to pass on their fortunes tax-free, further widening the economic disparity.

Currently, federal estate taxes are imposed on estates that exceed $13.61 million (indexed for inflation in 2024). If no legislative action is taken, this threshold will be reduced to approximately $7 million in 2026. While this will still affect only a small fraction of estates, the broader net may encompass more families than before. The Democratic platform hints that they will not attempt to lower estate taxes further but could let the threshold drop as scheduled.

Learn more: Do Living Trusts File a Tax Return?

Capital Gains Taxes: Aligning Investment and Wage Income

The Democratic Party has set its sights on eliminating the preferential treatment of capital gains for high-income earners. Specifically, the party proposes that millionaires should pay the same tax rates on their investment income as they do on wages.

Capital gains taxes apply to the profits made from selling assets such as stocks, bonds, or real estate. Currently, capital gains are taxed at a lower rate than regular income, making them an attractive option for wealthy individuals and retirees who rely on investments.

By targeting this preferential treatment, Democrats aim to ensure that wealthy individuals pay their fair share. However, this proposal may have unintended consequences for retirees who rely heavily on investment income rather than wages. Additionally, high-income earners in states like California, where state capital gains taxes can reach 13.3%, would face a steep combined tax rate under this policy.

Learn more: How to Minimize Inheritance, Estate & Capital Gains Taxes

The Stepped-Up Basis: A longstanding Loophole Under Fire

The stepped-up tax basis is a long-standing tool that allows families to build generational wealth by resetting the tax basis of an inherited asset at its market value upon the owner’s death. For example, if an individual inherits a home from a parent, the tax basis would be calculated at the property’s value at the time of death rather than its original purchase price. This effectively eliminates the capital gains tax on the asset's appreciation during the decedent's lifetime.

The Democratic Party proposes eliminating this loophole for the wealthiest Americans, arguing that it allows individuals to avoid taxes by passing down appreciated assets. This change would have significant implications for estate planning, particularly for families relying on property inheritance as a key investment. While the platform singles out the wealthiest Americans, the exact definition remains unclear, leaving room for interpretation during the policy implementation stage.

Learn more: California’s Scheme to Increase Your Property Taxes!

1031 Exchanges: Targeting Real Estate Investors

Another target in the Democratic Party platform is the elimination of the 1031 Exchange, or Like-Kind Exchange, loophole. This provision allows real estate investors to defer paying taxes on capital gains from the sale of a property by reinvesting the proceeds into a similar property.

The Democratic Party frames this as an unfair tax advantage that benefits wealthy real estate investors, including former President Trump. By eliminating 1031 Exchanges, Democrats aim to promote tax fairness and curb real estate speculation. However, it’s worth noting that these exchanges are not just used by the wealthy. Middle-class property owners also rely on 1031 Exchanges to build their investment portfolios, making this proposal potentially controversial.

Learn more: 1031 Exchange Explained: Swap and Save!

Conclusion: What to Expect from the Democrats

Overall, the Democratic Party’s tax policy proposals for 2024 remain in line with their broader goals of addressing wealth inequality and promoting tax fairness. However, these proposals—especially the changes to estate taxes, capital gains, the stepped-up basis, and 1031 Exchanges—are likely to face pushback, both from the public and within Congress.

As with all proposed legislation, much will depend on how these policies are implemented and what compromises are made along the way. While the Democratic platform emphasizes the need for change, it is clear that many of these policies are intended to energize the base rather than serve as concrete, immediate plans.

Read more: How Project 2025 Could Reshape Income, Estate, and Gift Taxes

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