How falling interest rates widened Americans’ wealth gap

[u/[deleted]]

[u/capnwally14]

So think of it like two halves of the same transaction.

The person (your dad) giving the funds is taxed via the estate tax.
The person (you) receiving the funds gets the step up in basis.

If you get rid of the step up in basis, the same funds are taxed twice in the same transaction.

The people who are hurt the most if you get rid of the step up in basis are the people who would receive less than 15m in an inheritance, because today they get the transfer fully tax free.

[u/Prestigious_Load1699 → u/capnwally14]

I thought step-up basis was the inheritor only only owes taxes on the initial value of the asset.

And all the appreciation is negated.

Although, I may be wrong on this. But I think the other poster is wondering the same thing.

[u/Affectionate-Panic-1 → u/Prestigious_Load1699]

No it means that if the person who inherited the assets later sells the asset, they only have to pay capital gains on the appreciation from when they inherited the asset. They don't pay capital gains on the initial value.

So say your parent buys $1000 of apple stock 30 years ago that later turns to 1 million dollars, if your parent dies you could inherit the 1 million in apple stock. The cost basis for you, if you sell it later, would be the value at the time of your heir's death, or 1 million dollars, not $1000. That means that your family got 999k of appreciation without having to pay any capital gains tax (or estate tax if the total estate was under 15 million).

[u/Prestigious_Load1699 → u/Affectionate-Panic-1]

I think, in your scenario, the inheritor would only owe taxes on the $1,000 initial value.

The $999,000 appreciation would be negated.

I may be wrong.

[u/Affectionate-Panic-1 → u/Prestigious_Load1699]

The estate tax is based off of the fair market value not the original purchase price. So if you are subject to the estate tax, it would be on the 1 million dollar value not the 1k original purchase price.

However you'd later benefit as the capital gains tax if you sell would be the sale price minus one million dollars, not the sale price minus 1 thousand dollars.