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1 Scott Eastman, The Trade-offs of Repealing Step-up in Basis 1 (2019)

handle is hein.taxfoundation/trdoff0001 and id is 1 raw text is: FISCAL FACT No. 641 Mar. 2019 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. @2019 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org The Trade-offs of Repealing Step-Up in Basis Scott Eastman Federal Research Manager Key Findings * The cost basis of property transferred at death receives a step-up in basis to its fair market value. This eliminates an heir's capital gains tax liability on appreciation in the property's value that occurred during the decedent's lifetime. * Property transferred before death receives carryover basis, which means the donor's original cost basis is carried over to the recipient. This requires recipients to pay capital gains taxes on appreciation in the property's value that occurred during the donor's lifetime if they sell the property. * Step-up in basis discourages people from realizing capital gains. Eliminating the policy would encourage capital gains realization, increase federal revenue, and remove a tax expenditure that allows taxpayers to entirely exclude returns on saving from taxation. * Step-up in basis can reduce compliance costs for heirs because tracking cost basis of long-held assets, especially from decedents, can be difficult. Step-up in basis could also shield heirs from paying both estate and capital gains taxes on the same asset. * Repealing step-up in basis would make the tax code more neutral and eliminate a tax expenditure. But eliminating the policy without changing the estate tax could increase the tax burden on capital and increase compliance burdens for taxpayers.