Search Site
Menu
The “Basis” for Good Planning: Using “Stepped-Up” Basis to Reduce Taxes

In recent years, it has become increasingly important to consider the income tax implications of gift giving and not just the estate tax implications.  For the majority of people, estate taxes are a non-issue due to the increase in the exclusion amount for US citizens.  However, income tax continues to impact everyone.  Therefore, an estate plan that is designed to optimize the income tax benefits to your heirs may have significantly more value than an estate plan focused solely on estate taxes.

The White House has identified the step-up in basis on capital assets as the “single largest capital gains tax loophole.”[1]  What is this loop hole you ask?  It is usually easiest to show with an example.  Imagine you have purchased stock in Google for $10,000 and over the years it has appreciated to $100,000.  If you sell that stock during your life the IRS will calculate the income taxes owed by subtracting your $10,000 basis from stock’s current fair market value of $100,000 which equals $90,000 [i.e. $100,000 – $10,000 = $90,000] of taxable income that can be taxed at a rate as high as 23.8% (or $21,420 in taxes owed).

Under this example, the capital gains taxes are more than twice as much as you originally paid for the Google stock.  Likewise, if you give that stock to your descendant while you are alive, then the recipient of that gift gets your original $10,000 basis and will have to perform the same capital gains calculation when they go to sell the asset.

By contrast, if a person dies owning that same stock there is a step-up in basis to the fair market value of the asset on the date of the owner’s death.  So if the stock is then worth $100,000 the new basis on the asset is $100,000 and the taxable income is $0.00 [i.e. $100,000 – $100,000 = $0].  With proper planning, this step-up in basis can occur again when the surviving spouse in a marriage passes providing your descendants with a second step-up in basis.

However, many older estate plans were designed to minimize estate taxes at the expense of maximizing the step-up in basis.  Accordingly, if you are holding on to older estate planning documents it is time to get in front of your estate planning attorney and make sure that your tax planning is still current in light of the changes in the tax law.

Royce Lanning

Phone: 281-367-1222

Fax: 281-210-1361

[email protected]

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact a Dedicated Texas Business Lawyer To Schedule a Consultation
Call 281-367-1222 or contact us online to schedule a meeting.

Strong In Action

  • Spring 2019

    The Strong Firm represents borrower in $42.3 million HUD construction loan for multifamily real estate development in Walton County, Florida.

    Read More
  • Spring 2019

    The Strong Firm acts as legal counsel for borrower in $32.1 million HUD construction loan for multifamily real estate development in Conroe, Texas.

    Read More
  • Spring 2019

    The Strong Firm aids borrower in $31.7 million HUD construction loan for multifamily real estate development in Nueces County, Texas.

    Read More
  • Spring 2019

    The Strong Firm represents borrower in the refinancing of a $3.57 million commercial mortgage-backed security for a commercial office facility in Montgomery County, Texas.

    Read More
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  • Peer Rated 2019 Award

Recent Blog Posts

Legislation Authorizes Paid Sick Leave for Workers Suffering from Coronavirus

New legislation passed in response to the COVID-19 pandemic allows certain workers to receive paid sick leave even if their employer previously did not provide it. In March, the federal government enacted the Families First Coronavirus Response Act (FFCRA). This law assists employers that give their employees paid time off
Read More
Legislation Authorizes Paid Sick Leave for Workers Suffering from Coronavirus

Lenders Suspend Home Foreclosures Due to COVID-19, But What Happens Next?

Many large financial institutions are suspending foreclosures because of the massive economic damage caused by COVID-19. Some banks have stopped proceedings indefinitely. Others have set time limits for foreclosure suspensions such as 60 or 90 days. Even as health and financial issues remain uncertain, this is a good time for
Read More
Lenders Suspend Home Foreclosures Due to COVID-19, But What Happens Next?

How Can I Create Estate Planning Documents During the Pandemic?

Even in its first few weeks, the COVID-19 pandemic caused many people to examine or reassess what is most important to them. The need to prepare in case of an emergency or untimely death has been highlighted by the tragic losses occurring around the country. What can you do if
Read More
How Can I Create Estate Planning Documents During the Pandemic?

Complying with Corporate Annual Meeting Requirements during the COVID-19 Quarantine

How do you hold a corporate annual meeting when the entire country is in lockdown? On the surface, it might seem like a simple matter of using a favorite video conferencing tool and perhaps checking to see if it’s been hacked. Annual meetings for corporations are more than get-togethers. They
Read More
Complying with Corporate Annual Meeting Requirements during the COVID-19 Quarantine
  • Video Vault


    Watch videos done by our legal team to gain a better understanding of your legal needs. Our lawyers give video insight into areas such as Real Estate, Business Law, Mergers & Acquisitions and much more.

Pay Retainer Online

Use our easy-to-use and secure online payment feature.
We accept all major credit cards.

Pay Your Retainer

Contact us

Quick Contact Form