Should stepped-up basis of inherited assets be restricted or abolished?

Should stepped-up basis of inherited assets be restricted or abolished?

  • Yes

    Votes: 33 29.7%

  • No

    Votes: 69 62.2%

  • Not sure

    Votes: 6 5.4%

  • Don't care

    Votes: 3 2.7%
  • Total voters
    111
Status
Not open for further replies.
pb4uski said:
I guess that some of us are more civic minded and believe in the greater good.
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Sure. But you can act on those views right here, right now. Just send a check to the US treasury equal to the foregone taxable gains on your inherited property.

This link explains how.

Bureau of the Fiscal Service - Public

fiscal.treasury.gov fiscal.treasury.gov

And if you are especially civic minded, do that for the next 10 years. Or more.
 
Unfortunately, if you believe the US treasury needs less money, you cannot withdraw from them.
 
tulak said:
And it’s not. A stepped up basis is not a taxable event, right?

You only pay taxes when you sell.
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Not per se. But there may have been estate taxes owed depending on estate size. The stepped up basis results from a transfer to a beneficiary subsequent to death.
 
Yes, we must be concerned about the wealthy. I always forget that.
 
Koolau said:
We ARE the wealthy (for the most part).

www.kiplinger.com

Are You Rich? U.S. Net Worth Percentiles Can Provide Answers

See the U.S. net worth percentiles and what Americans think is the magic number for them to be considered rich.
www.kiplinger.com www.kiplinger.com
Click to expand...
Not exactly. Actually, it's anyone with more than me that is wealthy and should bear the brunt of taxes and other forms of government servitude. I, OTOH, don't quite qualify as "wealthy" and should get a pass on having to contribute. The defining line moves along with my bottom line!
 
I think the tax laws are going to be redone this year. What that ends up looking like I have no idea. I have my own wish list, but doubt I will see very many of those things implemented.

OP, is there any discussion you know of around this particular tax suggestion? I think it's something you advocate for, but it does seem like an unpopular proposal so far based on the poll results.

If it were actually being talked about as part of the tax code adjustments that happen this year, I would pay more attention and be more interested. If not, then to me it's just a watercooler conversation akin to how we should fix Social Security.
 
youbet said:
Not exactly. Actually, it's anyone with more than me that is wealthy and should bear the brunt of taxes and other forms of government servitude. I, OTOH, don't quite qualify as "wealthy" and should get a pass on having to contribute. The defining line moves along with my bottom line!
Click to expand...
You're right! Heh, heh, let's forget about statistics and go totally on emotion! That's what most such arguments seem to boil down to. It's real easy to be altruistic - with OTHER people's money. :facepalm: :2funny:
 
SecondCor521 said:
I think the tax laws are going to be redone this year. What that ends up looking like I have no idea. I have my own wish list, but doubt I will see very many of those things implemented.

OP, is there any discussion you know of around this particular tax suggestion? I think it's something you advocate for, but it does seem like an unpopular proposal so far based on the poll results.

If it were actually being talked about as part of the tax code adjustments that happen this year, I would pay more attention and be more interested. If not, then to me it's just a watercooler conversation akin to how we should fix Social Security.
Click to expand...
Water cooler. No one has any hard knowledge of what changes to taxes will be carried out.
 
pb4uski said:
I guess that some of us are more civic minded and believe in the greater good.
Click to expand...
It's an all too common mistake, especially currently, to attribute virtue to those that agree with us and lack of virtue with those that don't. I think of myself as fairly civic minded. By some accounts I am a mean spirited curmudgeon though. I do know what I consider to be virtuous people that I disagree with on politics. But if you parse it fine enough, I actually disagree with everyone, even my former self.

You'd probably get more agreement on a poll to make inherited IRAs tax free roll overs rather than eliminating the stepped up basis on inherited assets outside qualified accounts. When two things are inconsistent, there are two ways to make them congruent. It doesn't have to go one way. That is, if your objective is to achieve consistency rather than just levy more taxes.
 
Montecfo said:
Loophole? No.

This "loophole" is just about as old as the estate tax. It goes back to 1921. A loophole refers to something inadvertent. This is completely purposeful and longstanding.

It was repealed once in 1976 (I was in college and recall the discussion in tax class). It never went into effect on record keeping and related concerns.

Changes to basis rules have been proposed quite a few times but have failed to make any headway. Why? Because there is a consensus that has built over time that death should not be a taxable event for most people.

To put a finer point on it, the estate tax exemption has grown steadily over the past 50 years or so to its present level of $14M. This has taken place over multiple law changes initiated by multiple congresses and administrations. These are not isolated events. It is evidence of consensus.

I think it is an interesting discussion, but to be most productive it should stay fact based, in my view.
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I guess that we'll need to agree to disagree. It is widely considered to be a loophole currently. Now back when the estate tax exemption was more modest then the quid pro quo for stepped-up basis was having to pay estate taxes so I would have agreed that it wasn't a loophole, but just an alternative way of having an end-of-life accounting albeit in a very crude way. But with the current very high estate tax exemption created a loophole.

If you're going to insist that death should not be a taxable event then the basis shouldn't change either... after all death isn't a taxable event so why should anything change.... and I would be fine with that.

If you want a step up in basis, then fine, pay 15% of the unrealized gains and you get a step-up in basis. You don't know the basis to calculate the gain? So sorry, you or whoever you inherited the asset from should have kept better records so either come up with a reasonable estimate and be prepared to defend it or set it at zero (all the same as what the decedent would have had to do if they had sold the asset prior to death). No sympathy here for poor record keeping. I've had to cobble together basis information for relatives in the past, it is a PITA but a consequence of their not keeping the records that they are obligated to keep as a taxpayer.
 
SecondCor521 said:
... OP, is there any discussion you know of around this particular tax suggestion? I think it's something you advocate for, but it does seem like an unpopular proposal so far based on the poll results. ...
Click to expand...
Yes, there have been proposals here and there over the years to abolish stepped-up basis, the most recent was in President Biden's FY22 proposed budget.

You may recall in the last year there has been some talk about taxing unrealized gains. While I oppose that idea and think it would be burdensome to administer especially for assets that are not regularly traded, that burden goes away at death in that one needs to obtain valuations to document stepped up basis... so it is more practical to do it then.

Additionally,
  • President Biden's FY 2022 budget proposal sought to eliminate stepped-up basis and tax capital gains at death, with exemptions for certain assets
  • The Sensible Taxation and Equity Promotion (STEP) Act, introduced by Senator Chris Van Hollen and colleagues in March 2021, aimed to close the stepped-up basis loophole by taxing unrealized capital gains when heirs inherit large fortunes
  • In 2010, the bipartisan Simpson-Bowles National Commission on Fiscal Responsibility and Reform proposed taxing capital gains before investments were passed on to heirs as part of a comprehensive tax reform
  • The Bipartisan Policy Center's Debt Reduction Task Force, led by Alice Rivlin and Senator Pete Domenici, included a similar proposal to reform stepped-up basis
 
bada bing said:
... You'd probably get more agreement on a poll to make inherited IRAs tax free roll overs rather than eliminating the stepped up basis on inherited assets outside qualified accounts. When two things are inconsistent, there are two ways to make them congruent. It doesn't have to go one way. That is, if your objective is to achieve consistency rather than just levy more taxes.
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I think you are right there, tax loopholes are extermely popular... often by the same people who lament about our $33T national debt.

I think it is crazy that the same legislators who are up in arms about the national debt (and I agree with their concern) are unwilling to ive even two-seconds of thought to increased taxes. Meanwhile, it is a fact that taxes are at historical lows and that $1 of tax income reduces the same as $1 of reduced spending. We need both but each side is polarized to only one alternative.

Do we really think it right that a married couple over 65 can have $129,800 of qualified dividends and LTCG and pay $0 in federal income tax?
 
Ok. I finally have to ignore this thread as it is getting blatantly political. Have fun.

Flieger
 
pb4uski said:
Do we really think it right that a married couple over 65 can have $129,800 of qualified dividends and LTCG and pay $0 in federal income tax?
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I don't know about "we" but I think it's okay. Why? Because the taxing authority has plenty of income. It just spends too much IMHO. That's something most of us here learned a long time ago. Spend less than you take in and you are much happier and more successful.
 
Sometimes it helps to look at the data. US total household wealth is around $170T, and yes, that’s a T. The debt is around $38T, Much of that wealth accumulation was enabled or assisted by the debt.

A 20% tax, like the capital gains tax, would pay off the debt. If the $170T is left to heirs in an estate, the lucky recipients didn’t do anything specific to merit or earn those assets.
 
pb4uski said:
I guess that we'll need to agree to disagree. It is widely considered to be a loophole currently. Now back when the estate tax exemption was more modest then the quid pro quo for stepped-up basis was having to pay estate taxes so I would have agreed that it wasn't a loophole, but just an alternative way of having an end-of-life accounting albeit in a very crude way. But with the current very high estate tax exemption created a loophole.

If you're going to insist that death should not be a taxable event then the basis shouldn't change either... after all death isn't a taxable event so why should anything change.... and I would be fine with that.

If you want a step up in basis, then fine, pay 15% of the unrealized gains and you get a step-up in basis. You don't know the basis to calculate the gain? So sorry, you or whoever you inherited the asset from should have kept better records so either come up with a reasonable estimate and be prepared to defend it or set it at zero (all the same as what the decedent would have had to do if they had sold the asset prior to death). No sympathy here for poor record keeping. I've had to cobble together basis information for relatives in the past, it is a PITA but a consequence of their not keeping the records that they are obligated to keep as a taxpayer.
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It is not a "loophole" by definition of the word. It is a long-standing feature of estate tax law which goes back over 100 years.

I already have referred to legislative initiatives to change the law. None have gained traction. This supports what I and others have been saying.

I have no dog in this fight. I have never inherited appreciated property. Reiterating your view multiple times here and in other threads is not the same as providing evidence that your view is correct.

And the poll you started is further evidence your view is not widely held.
 
pb4uski said:
Yes, there have been proposals here and there over the years to abolish stepped-up basis, the most recent was in President Biden's FY22 proposed budget.

You may recall in the last year there has been some talk about taxing unrealized gains. While I oppose that idea and think it would be burdensome to administer especially for assets that are not regularly traded, that burden goes away at death in that one needs to obtain valuations to document stepped up basis... so it is more practical to do it then.

Additionally,
  • President Biden's FY 2022 budget proposal sought to eliminate stepped-up basis and tax capital gains at death, with exemptions for certain assets
  • The Sensible Taxation and Equity Promotion (STEP) Act, introduced by Senator Chris Van Hollen and colleagues in March 2021, aimed to close the stepped-up basis loophole by taxing unrealized capital gains when heirs inherit large fortunes
  • In 2010, the bipartisan Simpson-Bowles National Commission on Fiscal Responsibility and Reform proposed taxing capital gains before investments were passed on to heirs as part of a comprehensive tax reform
  • The Bipartisan Policy Center's Debt Reduction Task Force, led by Alice Rivlin and Senator Pete Domenici, included a similar proposal to reform stepped-up basis
Click to expand...
There's a common thread here, that tells me you could put to rest any speculation this will happen in the next 4 years.
 
pb4uski said:
I guess that we'll need to agree to disagree. It is widely considered to be a loophole currently. Now back when the estate tax exemption was more modest then the quid pro quo for stepped-up basis was having to pay estate taxes so I would have agreed that it wasn't a loophole, but just an alternative way of having an end-of-life accounting albeit in a very crude way. But with the current very high estate tax exemption created a loophole.

If you're going to insist that death should not be a taxable event then the basis shouldn't change either... after all death isn't a taxable event so why should anything change.... and I would be fine with that.

If you want a step up in basis, then fine, pay 15% of the unrealized gains and you get a step-up in basis. You don't know the basis to calculate the gain? So sorry, you or whoever you inherited the asset from should have kept better records so either come up with a reasonable estimate and be prepared to defend it or set it at zero (all the same as what the decedent would have had to do if they had sold the asset prior to death). No sympathy here for poor record keeping. I've had to cobble together basis information for relatives in the past, it is a PITA but a consequence of their not keeping the records that they are obligated to keep as a taxpayer.
Click to expand...
This reminds me of when you lose your parking ticket you 'get' to pay the maximum amount - sorry, no excuses!
 
MichaelB said:
Sometimes it helps to look at the data. US total household wealth is around $170T, and yes, that’s a T. The debt is around $38T, Much of that wealth accumulation was enabled or assisted by the debt.

A 20% tax, like the capital gains tax, would pay off the debt. If the $170T is left to heirs in an estate, the lucky recipients didn’t do anything specific to merit or earn those assets.
Click to expand...
Yes, the raw numbers add up, but putting the 20% tax on that amount would affect a lot of things in ways we don't fully comprehend nor can we imagine.

The same idea for increased taxation could be applied to regular income. Just double income taxes and we'd have no deficit - except everything would change in the way people w*rk, earn, w*rk over time, retire, etc., etc.

The Laffer curve suggests there is an ideal taxation level which will bring in the most revenue. Unfortunately, the Laffer curve is a theoretical and does not have units on the vertical axis.

My point is that nothing (including) taxation takes place in a vacuum. Large changes in taxation lead to unintended and unpredictable consequences. It's not as simple as a math problem when it comes to taxes.
 
pb4uski said:
Yes, there have been proposals here and there over the years to abolish stepped-up basis, the most recent was in President Biden's FY22 proposed budget.
Click to expand...

I was actually wondering if there was any current discussions that might have a chance of passing through Congress this year. It doesn't appear that there are.
 
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