Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The Republican proposal to repeal the estate tax will actually result in much higher taxes for most Americans. Under the current system, when someone dies with an estate worth less than a certain amount ($11m in 2017), no estate tax is owed but the basis in their holdings increases to fair market value. However, in years with no estate tax, the assets will transfer to heirs at carryover basis.
What does this mean? If your dad dies and leaves you $300k in stock that he bought for $25k 30 years ago, you pay ZERO tax under the current system (since it is less than the $11m cutoff) but your basis in the shares becomes $300k. You can sell the stock tomorrow and recognize zero gain, and use those funds however you like.
However, if your dad dies in a year when there is no estate tax (i.e. 2010, and now maybe 2018 and beyond), there is no transfer tax but now you get those $300k in shares with a basis of $25k, meaning if you were to sell tomorrow, you would owe tax on a gain of $275k. That's a $96k tax!! It gets much, much worse if you're talking about the family house, farm, small or small business.
The repeal of the estate tax only helps people who have significantly more than the cutoff- you need to have ~$20m+ before you break even and more than that to actually get a positive result from the repeal.
It's a strange outcome from a repeal of a tax, but that's just how it works under our system. I actually don't know how I feel about this, and I'm a Republican (usually anti-death tax). But it's certainly not a tax "cut" for most Americans.
Good point. However, the estate tax is the way we prevent an end run around the constitutional prohibition against titles of nobility. It limits the concentration of vast wealth while the citizenry is reduced to peonage. Wealth is power, and the vastly wealthy are de facto nobility in America today.
A secondary consideration is equal taxation. During the last presidential campaign, it became obvious that our president has avoided paying taxes on hundreds of millions of dollars of income. It's obvious why he and his billionaire peers would want to eliminate the estate tax. At current rates, only 0.2% of all estates have to pay federal estate tax, but it still accounts for billions of dollars of revenue.
I have to admit I had not considered the capital gains tax increase on average Americans. I wonder what effect making capital gains up to $10 million tax exempt would have on federal revenues?
The Republican proposal to repeal the estate tax will actually result in much higher taxes for most Americans. Under the current system, when someone dies with an estate worth less than a certain amount ($11m in 2017), no estate tax is owed but the basis in their holdings increases to fair market value. However, in years with no estate tax, the assets will transfer to heirs at carryover basis.
What does this mean? If your dad dies and leaves you $300k in stock that he bought for $25k 30 years ago, you pay ZERO tax under the current system (since it is less than the $11m cutoff) but your basis in the shares becomes $300k. You can sell the stock tomorrow and recognize zero gain, and use those funds however you like.
However, if your dad dies in a year when there is no estate tax (i.e. 2010, and now maybe 2018 and beyond), there is no transfer tax but now you get those $300k in shares with a basis of $25k, meaning if you were to sell tomorrow, you would owe tax on a gain of $275k. That's a $96k tax!! It gets much, much worse if you're talking about the family house, farm, small or small business.
The repeal of the estate tax only helps people who have significantly more than the cutoff- you need to have ~$20m+ before you break even and more than that to actually get a positive result from the repeal.
It's a strange outcome from a repeal of a tax, but that's just how it works under our system. I actually don't know how I feel about this, and I'm a Republican (usually anti-death tax). But it's certainly not a tax "cut" for most Americans.
Good point about the capital gains and loss of the step up in basis. Thanks for sharing.
The Republican proposal to repeal the estate tax will actually result in much higher taxes for most Americans. Under the current system, when someone dies with an estate worth less than a certain amount ($11m in 2017), no estate tax is owed but the basis in their holdings increases to fair market value. However, in years with no estate tax, the assets will transfer to heirs at carryover basis.
What does this mean? If your dad dies and leaves you $300k in stock that he bought for $25k 30 years ago, you pay ZERO tax under the current system (since it is less than the $11m cutoff) but your basis in the shares becomes $300k. You can sell the stock tomorrow and recognize zero gain, and use those funds however you like.
However, if your dad dies in a year when there is no estate tax (i.e. 2010, and now maybe 2018 and beyond), there is no transfer tax but now you get those $300k in shares with a basis of $25k, meaning if you were to sell tomorrow, you would owe tax on a gain of $275k. That's a $96k tax!! It gets much, much worse if you're talking about the family house, farm, small or small business.
The repeal of the estate tax only helps people who have significantly more than the cutoff- you need to have ~$20m+ before you break even and more than that to actually get a positive result from the repeal.
It's a strange outcome from a repeal of a tax, but that's just how it works under our system. I actually don't know how I feel about this, and I'm a Republican (usually anti-death tax). But it's certainly not a tax "cut" for most Americans.
It's my understanding that the exemptions would remain in place which is approx 5.5 million per person
(11 million if married). I could not find any info stating otherwise.
Also, according to tax statistics 99.9% of all estates DO NOT pay estate taxes. When you see a percentage like that its obvious who a repeal is intended for.
"Only 1 out of every 700 deaths results in paying the federal estate tax today. The vast majority of estates — 99.9% — do not pay federal estate taxes. While the top estate tax rate is 40%, the average tax rate paid is just 17%"
However, if your dad dies in a year when there is no estate tax (i.e. 2010, and now maybe 2018 and beyond), there is no transfer tax but now you get those $300k in shares with a basis of $25k, meaning if you were to sell tomorrow, you would owe tax on a gain of $275k. That's a $96k tax!! It gets much, much worse if you're talking about the family house, farm, small or small business.
Many details of the proposed law have not been released (and likely not yet determined) and will look entirely different after Congress gets their hands on them
Your scenario would be true only if the inheritor of the stock sells immediately, is at the highest current tax bracket and the law doesn't change the basis date (unknown at this time). I would presume that if the basis amount carries over to the heir, then the date of basis would also. In that case, the gain would be a long term capital gain of 20% or less (unless those rates also change, which haven't yet been released), which is what it would be if the heir holds the stock for a year. I'd be very surprised if that does not happen.
It's my understanding that the exemptions would remain in place which is approx 5.5 million per person
(11 million if married). I could not find any info stating otherwise.
Also, according to tax statistics 99.9% of all estates DO NOT pay estate taxes. When you see a percentage like that its obvious who a repeal is intended for.
"Only 1 out of every 700 deaths results in paying the federal estate tax today. The vast majority of estates — 99.9% — do not pay federal estate taxes. While the top estate tax rate is 40%, the average tax rate paid is just 17%"
If the estate tax were repealed, there would be no exemption. The entire system would be gone.
While fewer than 1% of estates pay any tax under our current system, 100% of estates are subject to the estate tax system; they just aren't high enough in value to exceed the exemption. This means they get the basis step up "for free". It's those 99% of estates that will be worse off under the repeal.
Imagine inheriting a house worth $800k that was built from scratch by a grandfather when he was younger. Under our current system, the recipient can sell that house tomorrow and pay zero tax. If there were no estate tax and thus no basis step up, the heir would essentially be unable to sell the house without writing a huge check to Uncle Sam.
Think also of the small restaurant or car wash or hardware store owner- they are all much better off under our current system than if the estate tax were repealed. Basically anyone with even a modest investment in their lifetime will see the estate tax savings dwarfed by the increased capital gains tax as a result of the repeal.
People think of the capital gains tax and the estate tax as separate and distinct, but the two are very much intertwined. An earlier proposal (perhaps a tweet?) from Trump required automatic gain recognition at death in lieu of the estate tax- that's even worse than carryover basis as it forces the estate to sell some of the asset in order to pay the tax. Let's keep our fingers crossed that he can't get that one in there.
If the estate tax were repealed, there would be no exemption. The entire system would be gone.
While fewer than 1% of estates pay any tax under our current system, 100% of estates are subject to the estate tax system; they just aren't high enough in value to exceed the exemption. This means they get the basis step up "for free". It's those 99% of estates that will be worse off under the repeal.
Imagine inheriting a house worth $800k that was built from scratch by a grandfather when he was younger. Under our current system, the recipient can sell that house tomorrow and pay zero tax. If there were no estate tax and thus no basis step up, the heir would essentially be unable to sell the house without writing a huge check to Uncle Sam.
Think also of the small restaurant or car wash or hardware store owner- they are all much better off under our current system than if the estate tax were repealed. Basically anyone with even a modest investment in their lifetime will see the estate tax savings dwarfed by the increased capital gains tax as a result of the repeal.
People think of the capital gains tax and the estate tax as separate and distinct, but the two are very much intertwined. An earlier proposal (perhaps a tweet?) from Trump required automatic gain recognition at death in lieu of the estate tax- that's even worse than carryover basis as it forces the estate to sell some of the asset in order to pay the tax. Let's keep our fingers crossed that he can't get that one in there.
If you are a republican as you stated, no that is not something to be proud of.
The estate tax, that is ALL death taxes, both federal, state, and local, should have been abolished years ago. It only hurts small businesspeople and farmers. They should also get rid of the stepped up basis, but keep a favorable tax treatment for capital gains so that people will have an incentive to invest long term, rather than trade and speculate. And while they are streamlining the tax code, get rid of the AMT, don't allow deductions for property taxes and mortgage interest (except for rental property), and abolish all these tax deferred retirement and tuition plans such as all of the IRAs, 401k, 529 plans, etc. I love it how the middle classes in this country are always complaining about how the rich and the big corporations have all kinds of tax loopholes, yet not a word is said about all of the middle class tax deductions which allow many to pay little or no federal income tax.
If you are a republican as you stated, no that is not something to be proud of.
The estate tax, that is ALL death taxes, both federal, state, and local, should have been abolished years ago. It only hurts small businesspeople and farmers. They should also get rid of the stepped up basis, but keep a favorable tax treatment for capital gains so that people will have an incentive to invest long term, rather than trade and speculate. And while they are streamlining the tax code, get rid of the AMT, don't allow deductions for property taxes and mortgage interest (except for rental property), and abolish all these tax deferred retirement and tuition plans such as all of the IRAs, 401k, 529 plans, etc. I love it how the middle classes in this country are always complaining about how the rich and the big corporations have all kinds of tax loopholes, yet not a word is said about all of the middle class tax deductions which allow many to pay little or no federal income tax.
So basically you want to screw over the middle/upper middle class. Got it.
Least you took a stand.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
