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.
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,