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Financial Planning > Trusts and Estates > Estate Planning

New Bill Would Repeal Estate Tax, Keep Step-Up in Basis

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What You Need to Know

  • The step-up in basis affects far more estates than the estate tax, Ed Slott points out.
  • In 2010, estates could choose whether to pay the estate tax or lose the step-up in basis.
  • A proposal that lets people do both will never become law, Slott says.

Rep. Bob Latta, R-Ohio, reintroduced on Thursday legislation to permanently repeal the estate tax and retain the stepped-up basis at death.

“Repealing the Federal Estate Tax will bring a much-needed monetary reprieve to hardworking families across our country, which is why I’m pleased to lead this effort in Congress,” Latta said in a statement introducing the Permanently Repeal the Estate Tax Act.

Latta’s bill has seven GOP co-sponsors.

“Securing the economic prosperity for future generations of Americans is a worthy goal and releasing them from this burdensome and unnecessary tax is a good first step,” Latta said.

The bill’s authors want to keep the step-up “probably because they know that the income tax savings will apply to virtually everyone,” IRA and tax expert Ed Slott of Ed Slott & Co. told ThinkAdvisor Friday in an email. “With this proposal, people can have their cake and eat it too — both income tax and estate tax elimination. That won’t ever happen.”

The step-up in basis, which eliminates the capital gains tax on the lifetime appreciation of the decedent’s property, Slott said, “is way more important to most people than estate tax repeal, because most people are not subject to the estate tax due to the high exemption levels ($12,920,000 per person for 2023). While the vast majority of citizens don’t have an estate near that level, they do have highly appreciated property like their home, stock portfolio and other assets that have significant appreciation (but not IRAs or other tax-deferred retirement savings accounts — they never get a step-up in basis).”

To the majority, according to Slott, “the step-up in basis provides huge savings in income tax because the lifetime appreciation escapes income tax to the beneficiary upon death.”

The estate tax was temporarily repealed in 2010. “For that year, the step-up in basis was also eliminated, but you had a choice,” Slott explained. “Most estates opted for the estate tax to stay (since they didn’t have to pay it anyway) and kept the step-up in basis because that was where the big income tax savings was.”

Latta’s bill, Slott said, “is trying to get both, and that will never happen.”

— Allison Bell contributed reporting.


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