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Will the step=up basis be eliminated?

Congress is on the way to eliminating the estate tax (even if that gets phased in).
In the past, attempts to do this have been combined with the elimination of the step-up basis (at death) for funds, stocks, etc.
Will either the current House or Senate tax cut bill do that?


  • Consuelo's interviewee said the step-up in cost basis is alive and well in both the House & Senate bills.
  • HR 1 won't eliminate the step up. Here's the relevant text:
    (a) In general.—Except as provided in subsection (b), this chapter [11, that taxes estates] shall not apply to the estates of decedents dying after December 31, 2024 ...

    [and] Section 1014(b) is amended— [in paragraphs (6), (9), and (10) only]
    So the bill wipes out the estate tax (after 2024) while leaving the step up in basis. That's in a the unchanged paragraph (1) of Section 1014(b) of the Internal Revenue Code Section 1014(b)(1). That paragraph that provides a step up on "Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent"

    The Senate bill does not eliminate the estate tax, despite what you might have heard in that tax proposal interview at 15:10. Neither the Washington Post nor I can find any mention of an estate tax elimination in the Senate bill. Since the Senate bill doesn't eliminate the estate tax, we don't have to worry about how the Senate bill treats the step up when the estate tax is gone.
  • Thanks, Ted and Bee and msf, for the link and the info.
    It seems to me that having the step-up in basis at death is important for two reasons:

    (1) the heirs don't owe tax on the the appreciated gain (duh)
    (2) the heirs don't have the huge hassle and hopeless task of figuring out the true basis from Mom and Dad's incomplete records of purchases and reinvested dividends.

    On the other hand, according to Consuelo's interviewee, such complications are being re-introduced for homeowners who sell their house at an appreciated value after living in it a long time: you'll owe capital gains now.
    So trying to go back and find the original price and figure how much capital improvements you made through the years ....... Ugh.
    Best to will the house to the kids so they get the step up basis.

    Like many other things Congress does, these bills make me want to scream. I don't believe it's fair to pay taxes on taxes, so property taxes and state and local income taxes should all be deductible from Federal tax consideration. I don't care whether it's blue state or red state -- it's just not fair.

    The issue that bothers me the most is the elimination of the estate tax. Our ancestors fought for freedom from a system in which an aristocracy based on blood lines ruled over everybody. If huge -- multi-billions of dollars -- can be passed on from generation to generation, we run a huge risk of living under a new aristocracy based on overwhelming wealth.

    Maybe I went a little off-topic there.

  • msf
    edited November 2017
    Regarding cap gains on homes - interviewee (at 5:54) states correctly: "it's also important - always important - for individuals who own their homes to keep great records of the improvements they've put into their homes in order to try to eliminate or reduce part of the gain."

    The proposed changes would not make the record keeping tasks any more onerous than they are now or have been in the past. Regardless of how home cap gains are taxed, you always want to show as little gain as possible. Just like stocks, where you keep track of your purchase prices, buying and selling commissions, net proceeds (after other taxes/fees are taken out), you should be keeping track of similar home costs. The purchase price, improvements, additions, special assessments, etc.

    A proposed House change to the law would only affect high income people ($250K/$500K per year income). Those people likely own homes that already have big gains that are taxable (more than the $250K/$500K that homeowners can exclude). So this proposed change would have no effect on record keeping needs.

    Both House and Senate are proposing requiring people to stay longer in their homes to qualify for the $250K/$500K exclusion. The main people this change would affect are those who are flipping houses to keep their gains under the exclusion amount. They don't get much sympathy for me, and they're probably already keeping detailed records to achieve their objective of avoiding taxation on their home gains.

    Longer term, more and more people will need those records. The amount of gain you can exclude, $250K/$500K, was set in 1997. At the time, that sounded like a lot of money. Now, $250K won't buy you an entry level home in some neighborhoods, though it's still above the median price of a home in 80% of the states, including New York ($247K). In another 20 years, lots of people may have taxable gains in their homes.
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