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A retired friend of mine wrote this. May I have your opinions? It occurs to me that if they drop the estate tax and the exemptions that go with it, the govt. may end up with more income than it currently gets under estate taxes. In 1997 43000 people out of 2,700,000 adult deaths were effected by the estate tax. But if the estate tax is dropped then capital gains taxes will effect possibly all 2.7 million people. I assume that the family home will continue to have the exemption it now has so that won't get into capital gains but I think a lot of people own securities within that exemption of $675,000 that would be subject to tax. If each one of these people had $100,000 in cap. gains the govt would get $20,000 times 2.7million people or an additional $54 Billion in income that they don't get now. This would go a long way in offsetting the reduced taxes for estates over the $675000.

I also wondered how you would treat an IRA or other retirement funds because most people do not have a record of their costs. I'm assuming the retirement funds are a separate entity and while they are in that state do not belong to the recipient until a distribution is taken. So I assume the value would be the after income tax value after a distribution.
I was thinking how is the guy who owns a small business or a farm going to figure out a cost basis for his business. The Cap gains tax could be worse than the estate taxes.
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What might be affected is charitable contributions. Large estates often donate quite large amounts to charitable organizations since these contributions come off the top before estate taxes are levied. As it has been explained to me these contributions can be quite large without having too much affect on the amount of money left to a non spouse. I am no expert, but I do think it might have an affect on donations.
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>>>A retired friend of mine wrote this. May I have your opinions? It occurs to me that if they drop the estate tax and the exemptions that go with it, the govt. may end up with more income than it currently gets under estate taxes. In 1997 43000 people out of 2,700,000 adult deaths were effected by the estate tax. But if the estate tax is dropped then capital gains taxes will effect possibly all 2.7 million people. I assume that the family home will continue to have the exemption it now has so that won't get into capital gains but I think a lot of people own securities within that exemption of $675,000 that would be subject to tax. If each one of these people had $100,000 in cap. gains the govt would get $20,000 times 2.7million people or an additional $54 Billion in income that they don't get now. This would go a long way in offsetting the reduced taxes for estates over the $675000.<<<

Your friend is absolutely right fnnclplan. While the the powers to be brag about getting rid of the 'death tax', they don't mention the fact that they are eliminating the "stepped up basis" of the inheritance tax law. I don't mean to sound the Dem alarm, but this definitely will hit the middle class with more taxes and give that 2% of the big boys/girls big tax cuts.

As an example you inherit $675,000 from your parent and it is tax exempt. All stocks will have there basis bumped up their value on the day of death or six months later. That stepped up of the cost basis is now cap gains tax free, but under the GOP's plan the cost basis would remain as it is and not be stepped up and you would pay cap gains on the basis as established by your parent.

So much for tax cuts. Sounds like election year posturing.

DaveK
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sgtpp214 writes,

While the the powers to be brag about getting rid of the 'death tax', they don't mention the fact that they are eliminating the "stepped up basis" of the inheritance tax law. I don't mean to sound the Dem alarm, but this definitely will hit the middle class with more taxes and give that 2% of the big boys/girls big tax cuts.

As an example you inherit $675,000 from your parent and it is tax exempt. All stocks will have there basis bumped up their value on the day of death or six months later. That stepped up of the cost basis is now cap gains tax free, but under the GOP's plan the cost basis would remain as it is and not be stepped up and you would pay cap gains on the basis as established by your parent.


Very perceptive sgtpp214.

The media seems to be glossing over the fact that this "estate tax reduction" will actually RAISE TAXES for 98% of the population.

At least Clinton was only trying to "poke" Monica. It look like the Republicans are trying to "stick it" to everyone else.

intercst

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I just found this post over on the Tax Strategies board. If it's true, maybe things aren't as bad for folks with estates less than $1 million.

Author: criser Number: of 37505
Subject: Re: The cost of H.R. 8 Date: 7/14/00 11:34 PM

I'm trying to stay out of the debate about whether repealing the estate tax is good or not, since I'm an estate planning attorney and no one would believe that I was being honest whichever way I opined...

But I can clear up one apparent misconception.

HR8 does not entirely eliminate the step up in basis at death. It limits it to $1.3 million per person, plus there is a $3 million step-up for assets passing to a surviving spouse.

The way I assume the typical planning will happen is that, e.g., Dad dies in 2010, and would leave $1.3 million to a "basis step-up trust" and leaves the rest to Mom. $3 million worth of the assets passing to Mom gets a stepped-up basis. Mom dies in 2020 and leaves everything to the kids (or to a trust for the kids). $1.3 million of those assets get stepped up. So, plugging in some hypothetical numbers, lets say when Dad dies in 2010, the combined estate is $10 million, split equally between Mom and Dad, which has an overall basis of $5 million, also split equally between Mom and Dad.


intercst

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DaveK writes...
but under the GOP's plan the cost basis would remain as it is and not be stepped up and you would pay cap gains on the basis as established by your parent.
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If this is correct, it ought to get more publicity. Republicans are going to make a big deal out of Clinton's veto. My understanding is that they attached a lot of special tax breaks to the bill which by themselves are grounds for a veto regardless of how you feel about the estate tax repeal.

I just inherited stocks from my mother's estate, which was not subject to tax. You're right. If I had to use her cost basis instead of date of death value, the capital gains taxes would be huge.

Let's do something about the estate tax - raise the level at which it kicks in and slash the maximum rate for starters. But let's not give the super rich a big break and kick the moderately wealthy in the teeth at the same time.

BTW, I happen to have an estate which would be hit by the estate tax were it not for the fact that I'm giving most of it to charity. In fact, by giving my IRA's to charity I avoid both the estate tax and the income tax on the gains in the IRA's.
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Could someone please explain the stepup basis on value of stock and other assets, six months after death of a loved one. I just went through filing 706 forms for the government and everthing had to be as of the date of death. I'm confusioned. Thanks LO
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intercst
would this be with or without trusts, such as a,b&c. or any other trusts? LO
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