We Need To Talk About the Assault on ‘Stepped Up Basis’

By Tony Sagami

My father drew his hand across the horizon of our vegetable farm and said to me, “This land is my retirement account.”

My father, like all independent farmers, didn’t have a pension, a 401(k) or any retirement plan whatsoever. Farming is hard work with low pay, so my father never made much money.

All he had was his land and his home.

Our modest farm used to be in the middle of nowhere. Slowly but surely, it was surrounded by developments, mostly industrial warehouses.

Encroaching civilization drove the value of our land higher and higher. When he finally decided to step off the tractor, on paper, my father looked wealthy.

Rather than sell the farm to finance my father’s retirement, we decided as a family that it made more sense for us to supplement my father’s modest Social Security income.

The reason was simple: My father bought the land in the 1950s for peanuts and was sitting on a gigantic capital gain. But that gigantic capital gain would be completely wiped out if my father held that land until his death, thanks to a provision in federal tax law allowing for “stepped-up basis.”

That provision worked well for us. But, if you’re similarly situated with old family land, watch out! There’s a serious effort underway to eliminate stepped-up basis, which has been in effect via section 1014 of the Internal Revenue Code since 1954.

President Joe Biden has vowed to eliminate the stepped-up basis for inherited property. He calls it a “loophole” that allows the rich to “game the system.”

On March 29, Senators Chris Van Hollen (Democrat — Maryland), Cory Booker (Democrat — New Jersey), Bernie Sanders (Independent — Vermont), Sheldon Whitehouse (Democrat — Rhode Island) and Elizabeth Warren (Democrat — Massachusetts) introduced the Sensible Taxation and Equity Promotion (STEP) Act.

If passed, it would completely eliminate the stepped-up basis rule, which allows us to pass our property, free of capital gains, to our children, heirs and/or assignees, regardless of what the original basis was when we acquired the asset. 

On top of that, Sen. Sanders has introduced what he calls the For the 99.5% Act.

This legislation would reduce the federal estate exemption to $3.5 million, estate tax rate would increase to 50%, lifetime gift allowance would plummet to $1,000,000, total annual gift allowance would be reduced to $20,000 and grantor trusts and discounting would be eliminated altogether.

Success and Affluence Are Under Attack

Look, the government is printing, borrowing, spending and straight-up giving away money like there’s no tomorrow.

Somebody has to pay for all these federal giveaways, and — of course — the geniuses in Washington D.C. have targeted people with high incomes and people with valuable assets.

But every American taxpayer — whether you make $10,000 a year or $1,000,000 — is entitled to the benefit of stepped-up basis on inherited property. The elimination of stepped-up basis will be a huge tax increase for millions of regular Americans, not just the wealthy.

The result is a huge transfer of wealth, not from parents to children, but from parents to the federal government. If those tax-hungry politicians get their way, our children’s and our grandchildren’s rightful inheritances are in serious jeopardy.

If you’ve managed to accumulate a sizable nest egg and/or own a highly appreciated asset — a farm, a business, real estate, stocks or cryptocurrency — you need to do some estate planning before it’s too late. 

I strongly recommend calling your tax adviser and making an appointment to see them as soon as possible.

If you want to educate yourself on some of your options, I recommend “Disinherit the IRS: How to Keep Your Wealth in the Family Guaranteed!” by David T. Phillips.

Source: shopify.com

Click here to learn more about the book.

Full disclosure: David is a longtime friend and is also my personal estate planner. I do not, however, receive any compensation if you buy his book.

Your home is your castle. And it looks like the federal government is coming for it.

It’s up to you to decide how to act now.

Best wishes,

Tony Sagami