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> and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. Not so, because of the step up basis at death. Th

> and avoiding the obvious argument that capital gains are eventually taxed - the rich are not escaping that. Not so, because of the step up basis at death. That provision allows the capital gains tax to be not just postponed, but eliminated.

darkerside 5y ago
Ahh the old death loophole...
- thanatos519 5y ago
  You can't take it with you, but your estate can? WTF.
- mc32 5y ago
  I’m just surprised more wealthy people aren’t taking advantage of that obvious one.
koheripbal 5y ago
The step up basis only applies to estate taxes below the federal limits, so it doesn't apply to super-rich. ...another point (deliberately?) omitted from OP's article. Step up basis might get eliminated in any case, as the Biden Administration is proposing to remove it.
- bradleyjg 5y ago
  That’s not quite right. The step up basis applies to everyone. It is true that if estate taxes are paid on the gains then the step up loophole hasn’t completely eliminated taxes on capital gains. However, the estate tax is even more full of loopholes than the capital gains tax. See for example the Grantor Retained Annuity Trust. Finally, the Biden administration is not proposing to eliminate the step up basis entirely, unfortunately, but merely rein it in some.
aetherson 5y ago
For ordinary people, sure. But the estate tax kicks in at anything above $11M, and is 40%.
- DetroitThrow 5y ago
  The estate tax in America has been called the voluntary tax for a reason - it's almost never paid on at the rate you quote by anyone who can do the leg work to set up legal entities which can make the effective tax rate 0% - which ends up being trivial for billionaires: https://archives.cjr.org/the_audit/bloomberg_waltons_how_billionaires_get_around_estate_tax.php https://archives.cjr.org/the_audit/bloomberg_waltons_how_bil... Even a quick Google search yields articles describing a (very incomplete) list of loopholes one can use to make the estate tax not something one has to "worry about": https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-estate-tax https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-e...
  - aetherson 5y ago
    Perhaps, though all of those things have downsides and limitations. But the idea here is not defending all the intricacies of the US tax code. It's simply noting that the gloss of the article that somehow it's a giant scandal that unrealized cap gains aren't taxed is dumb.
  - koheripbal 5y ago
    Which is why we need to curb these non-profit donations and trusts. The estate tax rate itself is fine - the issue is the exemptions.
  - Supermancho 5y ago
    Ironically, when saying it's well know that the wealthy avoid taxes", gets downvoted in another thread. https://news.ycombinator.com/item?id=27090450 https://news.ycombinator.com/item?id=27090450
- bradleyjg 5y ago
  I love how in America everyone is middle class. $10 million estate—-that’s totally ordinary!
beervirus 5y ago
When you die, your estate pays taxes on the current value of the assets you’re passing along. Without stepped up basis, your heirs would get taxed again on gains that you essentially already paid a 40% tax on.
- bradleyjg 5y ago
  I think it would be perfectly reasonable to reset the basis on any asset which had 40% estate taxes paid on it, but that’s now how the law is written. Not only is there an $11 million lifetime exemption there’s also an annual gift tax exclusion that combined with some clever trust setups allow the wealthy to pass on much more than that without paying the 40%. In practice huge amounts of capital gains are not taxed by either the capital gains tax or the estate tax.
  - beervirus 5y ago
    The yearly gift tax exclusion is peanuts for a billionaire. The 11 million almost rounds to zero too.
  - koheripbal 5y ago
    Neither of your points impact Billionaires. They are meant to save small business owners.
    - bradleyjg 5y ago
      Eliminating the step up basis would have no impact on small businesses owners so long as they remain owners.
- notfromhere 5y ago
  Taxes happen when money changes hand, it’s not something out of the ordinary.
  - beervirus 5y ago
    I agree. I’m just talking about whether stepped up basis is fair or unfair.
tootie 5y ago
But are the assets liquidated? If ownership of assets just transfers to heirs, then they'll just pay the tax whenever they cash out.
- bradleyjg 5y ago
  That’s the point, the heirs don’t have to. Suppose I own $1 million worth of Bitcoin I mined back in the day. If I sell the day before I die I’ll owe $200,000 in long term capital gains taxes. But if I die, leave those coins to you, and you sell them the day you inherit them for the same $1 million, you owe no capital gains taxes. Edit: if this is surprising, it should be. The step up basis is insane.
  - taeric 5y ago
    Yeah. I've tried to convey this point to family before. I'm not sure why they don't believe me. They are convinced the "death tax" is some nefarious thing.
    - mlindner 5y ago
      The proposed "death tax" idea is to make inheritance a taxable event. I'm against that. I'm for however that capital gains carry past death. If you inherent cash, that cash has already had taxes paid for that. It shouldn't be taxed again like some "death taxes" propose to do. If you inherit stock, then sell it, the basis date for that stock should be the date it was bought, not the date you received it.
      - nobodyandproud 5y ago
        It’s not a bad compromise. Even that, I’m sure, would end up getting mangled over technicalities and added loopholes.
      - taeric 5y ago
        Sorta. Inheriting cash is no different than being gifted cash. And you would have to report that as income. It only gets complicated with capital assets. And your proposal works for simple stock holdings. Consider, if you are the beneficiary of a retirement account, you already have to withdraw percentages every year. So that is covered? Or not?
jquery 5y ago
So get rid of the step-up basis at death. There is no good reason for that to exist.
- bradleyjg 5y ago
  I agree, but even Biden’s opening gambit, which I believe has very little chance of passing as is, doesn’t eliminate it entirely. It seems to have powerful supporters.
- zentiggr 5y ago
  Go ahead and lobby Congress to pass that. See how easily you can get that done against the lobbying from the holders of that wealth. Now how do we change the system? Put it in front of the entire public how much higher a percentage of their wealth they give up compared to these few, and get the entire public to fight for equity.
mattmcknight 5y ago
The basis should at least be inflation adjusted.
- bradleyjg 5y ago
  I agree. The law should: - eliminate the step up basis at death entirely - index the capital gains basis to chained CPI - give a credit to heirs for estate taxes paid which can only be used to offset the capital gains on inherited assets up to the basis at death
  - fomine3 5y ago
    Look UMA in Mexico https://www.littler.com/publication-press/publication/mexico-increase-uma-value-announced-2020 https://www.littler.com/publication-press/publication/mexico...

darkerside 5y ago

Ahh the old death loophole...

thanatos519 5y ago
You can't take it with you, but your estate can? WTF.
mc32 5y ago
I’m just surprised more wealthy people aren’t taking advantage of that obvious one.

koheripbal 5y ago

The step up basis only applies to estate taxes below the federal limits, so it doesn't apply to super-rich. ...another point (deliberately?) omitted from OP's article. Step up basis might get eliminated in any case, as the Biden Administration is proposing to remove it.

bradleyjg 5y ago
That’s not quite right. The step up basis applies to everyone. It is true that if estate taxes are paid on the gains then the step up loophole hasn’t completely eliminated taxes on capital gains. However, the estate tax is even more full of loopholes than the capital gains tax. See for example the Grantor Retained Annuity Trust. Finally, the Biden administration is not proposing to eliminate the step up basis entirely, unfortunately, but merely rein it in some.

aetherson 5y ago

For ordinary people, sure. But the estate tax kicks in at anything above $11M, and is 40%.

DetroitThrow 5y ago
The estate tax in America has been called the voluntary tax for a reason - it's almost never paid on at the rate you quote by anyone who can do the leg work to set up legal entities which can make the effective tax rate 0% - which ends up being trivial for billionaires: https://archives.cjr.org/the_audit/bloomberg_waltons_how_billionaires_get_around_estate_tax.php https://archives.cjr.org/the_audit/bloomberg_waltons_how_bil... Even a quick Google search yields articles describing a (very incomplete) list of loopholes one can use to make the estate tax not something one has to "worry about": https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-estate-tax https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-e...
- aetherson 5y ago
  Perhaps, though all of those things have downsides and limitations. But the idea here is not defending all the intricacies of the US tax code. It's simply noting that the gloss of the article that somehow it's a giant scandal that unrealized cap gains aren't taxed is dumb.
- koheripbal 5y ago
  Which is why we need to curb these non-profit donations and trusts. The estate tax rate itself is fine - the issue is the exemptions.
- Supermancho 5y ago
  Ironically, when saying it's well know that the wealthy avoid taxes", gets downvoted in another thread. https://news.ycombinator.com/item?id=27090450 https://news.ycombinator.com/item?id=27090450
bradleyjg 5y ago
I love how in America everyone is middle class. $10 million estate—-that’s totally ordinary!

beervirus 5y ago

When you die, your estate pays taxes on the current value of the assets you’re passing along. Without stepped up basis, your heirs would get taxed again on gains that you essentially already paid a 40% tax on.

bradleyjg 5y ago
I think it would be perfectly reasonable to reset the basis on any asset which had 40% estate taxes paid on it, but that’s now how the law is written. Not only is there an $11 million lifetime exemption there’s also an annual gift tax exclusion that combined with some clever trust setups allow the wealthy to pass on much more than that without paying the 40%. In practice huge amounts of capital gains are not taxed by either the capital gains tax or the estate tax.
- beervirus 5y ago
  The yearly gift tax exclusion is peanuts for a billionaire. The 11 million almost rounds to zero too.
- koheripbal 5y ago
  Neither of your points impact Billionaires. They are meant to save small business owners.
  - bradleyjg 5y ago
    Eliminating the step up basis would have no impact on small businesses owners so long as they remain owners.
notfromhere 5y ago
Taxes happen when money changes hand, it’s not something out of the ordinary.
- beervirus 5y ago
  I agree. I’m just talking about whether stepped up basis is fair or unfair.

tootie 5y ago

But are the assets liquidated? If ownership of assets just transfers to heirs, then they'll just pay the tax whenever they cash out.

bradleyjg 5y ago
That’s the point, the heirs don’t have to. Suppose I own $1 million worth of Bitcoin I mined back in the day. If I sell the day before I die I’ll owe $200,000 in long term capital gains taxes. But if I die, leave those coins to you, and you sell them the day you inherit them for the same $1 million, you owe no capital gains taxes. Edit: if this is surprising, it should be. The step up basis is insane.
- taeric 5y ago
  Yeah. I've tried to convey this point to family before. I'm not sure why they don't believe me. They are convinced the "death tax" is some nefarious thing.
  - mlindner 5y ago
    The proposed "death tax" idea is to make inheritance a taxable event. I'm against that. I'm for however that capital gains carry past death. If you inherent cash, that cash has already had taxes paid for that. It shouldn't be taxed again like some "death taxes" propose to do. If you inherit stock, then sell it, the basis date for that stock should be the date it was bought, not the date you received it.
    - nobodyandproud 5y ago
      It’s not a bad compromise. Even that, I’m sure, would end up getting mangled over technicalities and added loopholes.
    - taeric 5y ago
      Sorta. Inheriting cash is no different than being gifted cash. And you would have to report that as income. It only gets complicated with capital assets. And your proposal works for simple stock holdings. Consider, if you are the beneficiary of a retirement account, you already have to withdraw percentages every year. So that is covered? Or not?

jquery 5y ago

So get rid of the step-up basis at death. There is no good reason for that to exist.

bradleyjg 5y ago
I agree, but even Biden’s opening gambit, which I believe has very little chance of passing as is, doesn’t eliminate it entirely. It seems to have powerful supporters.
zentiggr 5y ago
Go ahead and lobby Congress to pass that. See how easily you can get that done against the lobbying from the holders of that wealth. Now how do we change the system? Put it in front of the entire public how much higher a percentage of their wealth they give up compared to these few, and get the entire public to fight for equity.

mattmcknight 5y ago

The basis should at least be inflation adjusted.

bradleyjg 5y ago
I agree. The law should: - eliminate the step up basis at death entirely - index the capital gains basis to chained CPI - give a credit to heirs for estate taxes paid which can only be used to offset the capital gains on inherited assets up to the basis at death
- fomine3 5y ago
  Look UMA in Mexico https://www.littler.com/publication-press/publication/mexico-increase-uma-value-announced-2020 https://www.littler.com/publication-press/publication/mexico...