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In the example the OP gave, the house was purchased for $100,000 and appreciated $300,000 for a value of $400,000. The tax is $300,000, not the $100,000 basis which is not being taxed as income by the heirs. When has that $300,000 been taxed before?
Not the $100,000 that was used to purchase the house to begin with.
Also, capital gain tax rates are typically more favorable than ordinary income tax rates, so the person inheriting the asset and making a windfall of it is being taxed at a lower rate than if they had earned the money by working for it.
Under current tax law, if they sold the house, the $300,000 would be exempt from taxes.
I took care of my children already. There will be no Federal tax grab on my gifts to them. There seem to be a lot of jealous people on this forum that resent any parent leaving a nest egg for their children. It must have sucked to have parents who either were to short sighted to save or simply never found a solid plan to do so. Punishing others won't erase the failure of parents who chose a different path.
Doesnt bother those of us who aren't inherited and given everything by their rich parents. Some people have to actually WORK for what they get.
TRANSLATION: I'd rather the government be given everything that my parents worked for. Against their wishes. No, I can't explain why that would be better. I just feel govt should get wealthier, not the people.
I struggle to understand why Trumpers do not like this.
It would seem to me they would be in favor of eliminating a loophole that allows people who inherit property or stocks to pay less taxes than someone who bought and sold the exact same property or stocks. This disproportionately favors rich people.
Scenario A:
Mr. Jones buys $100 of Apple shares at their IPO in 1980. He sits on the stock and finally decides to cash out in 2019 and is able to sell for $13,100.
He realizes a gain of $13,000 and the capital gains rate is 15% for his income bracket so he pays Uncle Sam $1,950 in taxes and walks away with $11,050 in profit. Well done Mr. Jones.
Scenario B:
Mr. Smith gets in on the same IPO for $100 and also holds the stock. Unfortunately for Mr. Smith, he dies before he is able to sell in 2019. He passes the stock down to his son who is allowed to step the basis up to the current market value of $13,100 before he sells it and pays $0 in gains.
Why does Mr. Smith’s son deserve a more favorable tax treatment than Mr. Jones?
isn't investing "earning the money"?....investing in something that appreciates in value...like a house
It would be for the person who paid for the house but not the person who inheriting it. The heir never invested in anything themselves. They received something given to them that someone else had invested in.
Quote:
Originally Posted by bu2
Under current tax law, if they sold the house, the $300,000 would be exempt from taxes.
That's not the part being disputed.
The question is should that $300,000 of realized income by someone who didn't invest in it to begin with be taxed when taxes haven't been paid on the profit? And if so, why does that person receive an exemption when someone who goes to work and earns their own money (many of whom are not high wage earners) get taxed? Why should they not have to pay taxes and the working stiff ends up having to subsidize that? The question is whether that is good public policy?
I struggle to understand why Trumpers do not like this.
It would seem to me they would be in favor of eliminating a loophole that allows people who inherit property or stocks to pay less taxes than someone who bought and sold the exact same property or stocks. This disproportionately favors rich people.
Scenario A:
Mr. Jones buys $100 of Apple shares at their IPO in 1980. He sits on the stock and finally decides to cash out in 2019 and is able to sell for $13,100.
He realizes a gain of $13,000 and the capital gains rate is 15% for his income bracket so he pays Uncle Sam $1,950 in taxes and walks away with $11,050 in profit. Well done Mr. Jones.
Scenario B:
Mr. Smith gets in on the same IPO for $100 and also holds the stock. Unfortunately for Mr. Smith, he dies before he is able to sell in 2019. He passes the stock down to his son who is allowed to step the basis up to the current market value of $13,100 before he sells it and pays $0 in gains.
Why does Mr. Smith’s son deserve a more favorable tax treatment than Mr. Jones?
What does this scenario have to do with "Trumpers"?
The step-up basis was in place long before Trump. It has absolutely nothing to do with Trump.
It would be for the person who paid for the house but not the person who inheriting it. The heir never invested in anything themselves. They received something given to them that someone else had invested in.
That's not the part being disputed.
The question is should that $300,000 of realized income by someone who didn't invest in it to begin with be taxed when taxes haven't been paid on the profit? And if so, why does that person receive an exemption when someone who goes to work and earns their own money (many of whom are not high wage earners) get taxed? Why should they not have to pay taxes and the working stiff ends up having to subsidize that? The question is whether that is good public policy?
What is the difference if the parent sold the house, paid no tax and gave $400,000 cash in their will vs:
Giving a $400,000 house to their heir?
I don't like it but I would have to look at all the dirty details. I've read different things that seem to contradict other sources.
There will be an escape clause for a select few. There always is.
You just have to be rich enough to qualify. That's standard operating procedure.
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