--- In [email protected], new_morning_blank_slate
<[EMAIL PROTECTED]> wrote:
>
> --- In [email protected], "shempmcgurk" <shempmcgurk@>
> wrote:
> >
> > Few people are aware that any suggestion for the elimination of
the
> > estate tax comes with the elimination of the stepped-up basis
for
> > capital gains. Currently, all capital gains get "stepped-up" of
> > their cost basis to market value on the day of death...so when
your
> > heirs inherit an asset of your's with a capital gain the cost
basis
> > on it is considered the market value on the day of death...in
other
> > words, ZERO capital gains.
> >
> > With the elimination of the estate tax (as the law currently
calls
> > for in the year 2010...and JUST the year 2010...it comes back in
> > 2011) is the elimination of the stepped-up basis....so the
> > government gives with one hand and takes with the other.
> >
> > So if and when the government eliminates the estate tax don't
scream
> > that it is a give-away for the rich because the rich very well
may
> > end up paying MORE on death than if there was an estate tax...
> >
> > By the way, that is the way it is in socialist Canada: there is
no
> > estate tax but there IS a capital gains tax on death.
>
> Shemp,
>
> While its a good point you raise about the (partial) take back due
to
> loss of stepped-up basis, I am unable to construct an example
where an
> heir would pay more taxes with an original basis and a 15% capital
> gains tax vs an inheritance tax of ~35-46% on a stepped up basis.
Can
> you provide one.
Sorry to respond so late...but I had trouble finding your response
under this new godawful Yahoo! format.
I'll give you a real example under Canadian law that I am
experiencing right now...I know, what does Canadian law have to do
with the States? Nothing, but there is no estate tax there and no
stepped-up basis.
My dad died 6 months ago and left an estate worth about CDN$500,000.
One of the assets was a home in the U.S. worth about CDN$250,000
with a cost basis of about $100,000. He has to pay (actually we his
heirs have to pay out of the estate) about 20% on the gain of
$150,000 which is about $30,000.
Assuming instead an estate tax with an exemption of $2,000,000, we
wouldn't have to pay any estate tax at all.
But that's not really fair to you because there is to be an
exemption on inherited capital gains in the U.S. in the year 2010
and I'm not sure what the amount is, so I probably jumped the gun in
brashly claiming that the government will get more with the
elimination of the stepped-up basis than with the estate tax. So it
will all depend upon what exemption there will be. But somehow I
think I'll be right and that the government WILL make more under the
stepped-up basis elimination.
>
> For example using current limits, if origianl basis in a house is
300k
> and is sold by the estate for 1,300K (not unusual in todays
inflated
> RE market) then heirs would be subject to 15% x 1Mil capital gain =
> $150k. (Unless the house had been placed in an irrevocable trust
prior
> to the "willer's" death. If so, then as I understand it, the basis
is
> stepped up, and is under the estate tax limit, thus no tax on the
> house is due.)
>
> In contrast, if no estate tax exepemtion were in place, the heirs
> would owe 35%+ on the 1.3 mil = ~450k. Much more than the $150 with
> the stepped up basis and estate tax limitations.
>
> Can you clarify when and how an heir would pay more taxes with an
> original basis and a 15% capital gains tax vs an inheritance tax of
> ~35-46% on a stepped up basis? Thanks.
>
See above.
By the way, did you know that if someone with a large estate dies
AND they have a large IRA that the loss on the IRA will be about
73%? That's because there is not only estate tax on the IRA but
I.R.D. tax as well (Income Tax in Respect of a Decedent). Top
marginal federal and state income taxes (about 50% combined in both
New York and California) plus 46%, so:
1,000,000 IRA
Less 500,000 combined state and federal income tax
= 500,000
Less 230,000 Estate tax at 46%
= 270,000 Net to heirs
Now, what's REALLY fun, new.morning, is to figure out ways to
SHELTER estates from the estate tax. The funnest and best way for
many is something called a "Private Annuity Trust". Wheee!
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