A new legislative effort, which started last year as House Bill 7035 was reintroduced in January 2025 by Representative Randy Feenstra, R-Iowa. The “Death Tax Repeal Act,” seeks to repeal the U.S. estate tax (often called the Death Tax) and the generation-skipping transfer tax. If passed, the Death Tax Repeal Act would have far-reaching implications for wealthy individuals and foreign investors wishing to invest in the U.S.
Mr. Feenstra’s legislative move has now gained strong momentum with more than 170 House Republicans on board to repeal the estate tax. A counterpart bill in the Senate introduced on February 13, is backed by 44 Senators and being led by Majority Leader John Thune, R-S.D.
These moves have reignited debates over the role of such taxes in wealth distribution, economic growth, and fiscal policy. While proponents argue that the death tax is an unfair burden on families and small businesses, critics contend that repealing the estate tax would primarily benefit the ultra-wealthy and reduce government revenue. Regardless of the debate, the bills introduce significant changes that warrant close examination.
Understanding The Death Tax
The federal estate tax is levied on the transfer of an individual’s assets upon death. The rules apply differently to U.S. citizens and foreign individuals treated as resident when compared to non-citizen non-resident individuals. Given the current large estate tax exemption amounts for U.S. citizens and residents, only a small fraction of estates are actually subject to this tax.
It’s crucial to distinguish between estate and inheritance taxes. The estate tax is imposed on the fair market value of the deceased’s total assets before distribution to beneficiaries, while inheritance taxes are levied on the recipients of the assets. Notably, the federal government imposes an estate tax but does not have an inheritance tax. Some states, however, implement their own estate or inheritance taxes.
Death Tax Repeal: Increased Foreign Investment In America?
One of the most immediate effects of repealing the death tax could be the potential increase in foreign investment in U.S. assets. Under current law, non-citizen non-resident investors are subject to the U.S. estate tax on their U.S.-situs assets, such as real estate and stock in U.S. corporations. However, unlike U.S. citizens and residents, who receive an exemption of $13.99 million in 2025 (set to expire in 2026 and revert to an inflation adjusted approximate $7 million amount), NCNRs receive only a $60,000 exemption before being subject to estate tax rates as high as 40%.
If the death tax is repealed, foreign investors would no longer need to worry about estate tax exposure or implementing structures to avoid the tax, making the U.S. a more attractive destination for foreign capital. This could result in increased foreign investment in U.S. real estate, greater participation in U.S. stock markets and expanded U.S. business ventures. Overall, repealing the estate tax could remove a key barrier that has historically limited cross-border investment, boosting the U.S. economy.
Death Tax Repeal: Impact on Covered Expatriates And Section 2801 Transfer Tax
Might the estate tax repeal possibly eliminate the Section 2801 transfer tax imposed on U.S. recipients of bequests from covered expatriates? Covered expatriates are individuals who have renounced U.S. citizenship or long-term residency and meet certain financial thresholds or fail to certify tax compliance for a 5-year period prior to giving up their U.S. status. Under current law, when a covered expatriate leaves an inheritance or makes a gift to a U.S. citizen or resident, the recipient must pay a current 40% transfer tax on the amount received. Might the repeal of the estate tax impact a “covered bequest?”
By implementing conforming amendments to the tax code, the House version of the bill makes sure that the estate tax repeal will not impact Section 2801 taxation of U.S. recipients of covered bequests. Surprisingly, the Senate version does not mention Section 2801, but it is still very early days.
Under the House version of the bill, while the repeal of the estate tax eliminates direct estate tax consequences for many, it does not repeal the Section 2801 transfer tax. U.S. recipients of gifts or inheritances from covered expatriates will still be taxed at the highest gift tax rate imposed under the relevant amended Code Section. In a small win for such U.S. recipients, under both House and Senate bills, it is at a 35% maximum rate (reduced from 40%). The repeal of the estate tax will not eliminate the tax burden on these transfers and wealthy individuals considering expatriation will still face limitations on passing wealth to U.S. heirs tax-free.
Conforming Amendments To The Gift Tax
Even if the estate tax is repealed, the gift tax would remain in place to prevent high-net-worth individuals from shifting income and assets to family members tax-free. Both bills include several conforming amendments to align the tax code with the repeal of the estate tax.
Since the estate and gift tax have historically been linked, the bills ensure that lifetime transfers remain subject to taxation by retaining the gift tax with modifications. In both the House and Senate versions the highest gift tax rate is reduced from 40% to 35% and contains a $10 million lifetime exemption amount.
Arguments For And Against Death Tax Repeal
Supporters of repeal argue that the estate tax threatens family-owned businesses and farms, sometimes forcing heirs to sell assets to cover tax liabilities. When Rep. Feenstra first introduced H.R. 7035, he cited the concerns of family farms and ranches, which are a significant constituency in Iowa. Supporters also believe repeal would encourage saving, investment, and economic growth while eliminating what they see as double taxation on previously taxed earnings.
Critics contend that the estate tax has not and will not impact farms and small businesses since most estates are already exempt; they believe concerns about small businesses are overstated. They further argue that the estate tax generates essential government revenue, while its repeal would increase deficits; that it helps mitigate wealth inequality by preventing vast fortunes from passing untaxed across generations.
Conclusion
Proposed repeal of the death tax represents a significant policy shift with wide-ranging consequences. Beyond benefiting U.S. citizens and residents, the repeal could encourage foreign investment. However, to offset lost revenue, conforming amendments preserve the gift tax.
With the debate over taxation, fairness, and economic impact heating up, the fate of these bills remains uncertain. If passed, the new law would fundamentally reshape estate planning and wealth transfer strategies, with profound effects on both U.S. and international investors. Taxpayers need to keep themselves updated and review their estate plans with qualified U.S. tax advisors in anticipation of these changes.
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