Posted on 01/19/2015 12:21:35 PM PST by Nachum
As the old saying goes, there are two things that are certain in life, death and taxes. Tomorrow night during his 2015 State of the Union speech, President Obama will announce that people paying taxes their entire lives just isn't good enough. The President wants the current 40 percent death tax rate increased to 60 percent. Americans for Tax Reform breaks down the details:
2. Stealth increase in the death tax rate from 40% to nearly 60%.
Under current law, when you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent's original basis. Almost always, the fair market value is higher.
Under the Obama proposal, when you inherit an asset your basis will simply be the decedent's original basis.
Example: Dad buys a house for $10,000. He dies and leaves it to you. The fair market value on the date of death is $100,000. You sell it for $120,000. Under current law, you have a capital gain of $20,000 (sales price of $120,000 less step up in basis of $100,000). Under the Obama plan, you have a capital gain of $110,000 (sales price of $120,000 less original basis of $10,000).
There are exemptions for most households, but this misses the larger point: the whole reason we have step up in basis is because we have a death tax. If you are going to hold an estate liable for tax, you can't then hold the estate liable for tax again when the inheritor sells it. This adds yet another redundant layer of tax on savings and investment. It's a huge tax hike on family farms and small businesses.
(Excerpt) Read more at townhall.com ...
We’ll be having widows throwing themselves on their husbands’ funeral biers!
The death tax and the gift tax should be 0
“Under current law, when you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent’s original basis. Almost always, the fair market value is higher.”
I believe that is false under current law.
your basis in the asset is the fair market value at the time of death. (Even if the decedent’s original basis is higher.) Yes, you lose the unrealized loss if you die.
example. You buy stock with 20,000. Value drops to 11,000 and you die. Heir gets it. Value goes back to 20,000 and heir sells. Heir has a long term capital gain of $9000.
I despise this man.
You are not allowed to help your family, the government will most assuredly do that...
After years of touting to save for your kids college education, he’s now proposing to take that.
Fantastic. I wonder if he would talk cuts? Nah.
Maybe I’ll play all three, Fairness, Social Justice and Working Families which should leave me pretty DRUNK.
More taxes on college savings, but free community college for the 20% of people who actually finish it because paying for college is too hard.
Great plan Obama.
Sorry, you are wrong, at least partially.
Let’s use two sets of numbers.
First—yours. The capital gain realized by anyone who sells an asset is, as you say, determined by their basis. But, there’s an exemption for the estate which is $5.3 (say 5) million dollars. So, when the estate is settled, the house will be valued (that’s part of the process) at 100k. Since 100k is less than 5 Million, the estate does not have to pay tax. The inheritor (you, I guess) gets the house for a “stepped up” basis of its value when you inherit it... 100k. No one owes any taxes. If it goes to 200K while you own it and then decide to sell, you’d pay capital gains tax on the 100k increase.
Second set—Your parents have $5 million in cash, and a house they bought for 40k, but is worth 100k at death. Since the estate is worth $5.1 million, 40% tax is due on the excess, or 60K, when the estate is settled. It could come from sale of the house, or by dipping into the cash—the government doesn’t care. If you then inherit the house, it’s basis is 100k. If the government resets that basis to 40K (the original price), and the house goes to 200k when you decide to sell, you’d owe capital gains on the difference of 160k. In other words, the exemption didn’t help!
Note: I simplified the exemption amount to 5 million (I think its around 5.3), and I used a single person’s exemption—married couples can pool their basis to double the amount.
I hope this is helpful, and that your parents live forever.
Been there, done that.
The idea of doing away with a stepped-up basis for inherited property is not new. In fact, such a law was already passed - that change was part of the Tax Reform Act of 1976. That portion of the law was never popular and kept getting postponed by Congress until 1980 when it was repealed.
The President who originally signed the law doing what Obama is now asking? Gerald Ford.
The President who signed the law repealing what Obama is now asking? Jimmy Carter.
” After years of touting to save for your kids college education, he’s now proposing to take that.”
I’m probably not telling you anything you don’t already know, but wait till they take our 401k’s.
Because they will.
Idiot liberals will applaud this, until mom and dad croak and they realize how it affects them.
I know I won't be watching.......
I will go muck out stalls or pick up dog crap or something...............
I hope he is the first to have to pay such a tax.
If the government took it all, it would still not be enough to satisfy their greedy lame asses.
Not the issue - under this proposal you do not inherit the asset at the value at the time of the estate settlement, it may have a value for the inheritance tax of 100K but the Cost Basis is whatever the asset was originally purchased at. If you sell it at the 100K value, you owe Capital gains tax on the difference. If your parent bought the house in 1950 for 10K and it's worth 1 million at the time of their death, the capital gains are 990K. The estate has only the 1 million house - there are no estate taxes, but there are gains on the house.
Second set—Your parents have $5 million in cash, and a house they bought for 40k, but is worth 100k at death. Since the estate is worth $5.1 million, 40% tax is due on the excess, or 60K, when the estate is settled. It could come from sale of the house, or by dipping into the cash—the government doesn’t care. If you then inherit the house, it’s basis is 100k. If the government resets that basis to 40K (the original price), and the house goes to 200k when you decide to sell, you’d owe capital gains on the difference of 160k. In other words, the exemption didn’t help!
You are right, but the exemption is not the issue. It's the way the capital gain is calculated. A farm that is worth 5 million is left to the son who cannot or does not farm. Great Granpa bought the land for pennies during the depression. He owes no estate tax but when he sells he owes capital gains on the 5 million less what the farm cost during the 20's.
Total change in how an estate is settled. I can't even begin to figure out how someone can prove the initial cost of an asset that has been held by a family for many years like artwork or rare coins. That is why the value, for the purpose of capital gains, is valued at the time of death (or acquisition if that value is lower). It's a new way to get capital gains tax revenue increased, plain and simple.
the "Death Tax" is a way to make it look like something it's not,
Best Regards,
Every dime should be exempt.
How would putting all of the assets into a corporation before anyone dies change things?
Like, he just cant bring himself to do anything except what weakens USA (and builds up the worldwide IslamoNazi arsenal and empire/)
And I'm sure that the IRS will be glad to estimate the cost basis unless you can prove it otherwise.
Re the first part.. You are correct that this proposal changes cost basis. But, what it changes is the cost basis of the person who inherits.
Under present law, the cost basis is stepped up to market value at the time of death. Whether that results in estate taxes on settlement depends on how big the estate is.
If you think about the motivation, and not the details (which you can check with any accountant), the motivation is to cripple the amount which any family can pass on. The way it does that is subtle—it burdens the inheritor with an additional tax that did not exist before. And it can be a very large one, in the case of the family property.
So, the proposal won’t make the initial transfer from the parents to the first inheritors any more expensive, but it will tax heavily any sale by those inheritors. Am I clear? It’s tough when talking about these convoluted parasitic laws.
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