retirement planning services since 1987

Blog

Stepping On the “Stepped-Up Basis” Rule

May 17, 2021

It’s a bit odd when the party claiming to be for everyone – the Democratic Party – wants to eliminate a law from 1954 that benefits almost all Americans. But here we are.

President Biden, along with Democrats in the House and Senate, want to eliminate the “stepped-up basis rule” for inherited property. It’s a recent strategy that spins a new revenue source out of thin air. But if it’s successful, millions of middle-class families could suffer financially.

Here’s how it works. Suppose your parents bought a home years ago for $50,000 and it’s now worth $200,000. If they give you the home prior to their death, your cost basis is $50,000. If you sold the home for $200,000, you’d pay a capital gains tax on the profit of $150,000.

If you instead inherited the house, your cost basis would be equal to the fair market value of the property at the date of death – in this example, $200,000. If you sold the property for $200,000, there would be no capital gains tax because there is no gain as the cost basis was “stepped up” from $50,000 to $200,000.

This rule absolutely does not apply only to rich people. Every American taxpayer enjoys the benefit of a “stepped-up basis” on inherited property. If it were repealed entirely, all gains on inherited property would be taxed at the capital gains rate. There would also probably be valuation issues.

Why the recent attacks on this rule? According to Gallup, as of 2017, 82% of Americans over age 65 owned their home, the highest rate of homeownership for any age group. Since property is most often passed to heirs, it seems we’re due for a gigantic transfer of wealth in the years just ahead, and the government wants in on the action.

Sign up to receive updates on our financial blog!

We don’t spam! Read our privacy policy for more info.

Share this post

Share on facebook
Share on twitter
Share on linkedin
covid-19 update

We want to let you know we’re keeping things clean and being cautious.

We have adopted the following procedures for all meetings at our office, including the appointment we have scheduled with you:

Send us a message and receive a complimentary follow-up call from one of our team members!
X
X