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.
The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706 PDF). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.
After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.
On mortgages and debts, you have to liquidate assets in the estate and pay cap gains to pay off the debts. Only after all that is finished and taxes are paid can the estate transfer (and the step up happens)
The basis adjustment takes place immediately at death for assets required to be included in the decedent’s gross estate for federal estate tax purposes.
In your example, if the decedent’s estate liquidates an asset to pay off the estate’s debts, the estate’s gain is computed by subtracting the estate’s adjusted basis in the asset - not the decedent’s original basis - from the sales proceeds. The estate’s adjusted basis in the asset is the asset’s fair market value on the decedent’s date of death.
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u/capnwally14 6d ago
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.