What is the increase in the base?

Definition and Examples

The stepped-up basis is a tax loophole that allows capital gains taxes to be avoided when passing on assets. This loophole adjusts the tax value of assets so that if they have appreciated in value and are sold, there is less capital gain subject to tax.

How Does This Loophole Work?

The stepped-up basis loophole affects how and when you decide to pass your accumulated wealth on to your heirs. If you wait until after your death, the loophole allows them to realize more capital gains while paying less in taxes.

What Does This Mean for Individual Investors?

Your heirs will not benefit from the stepped-up basis if they exceed the estate tax limits and you do not have much cash in hand. In this case, you can use annual gift tax exclusion limits to give appreciated stocks, real estate, or assets to your heirs while you are still alive.

Alternatives to the Stepped-Up Basis

A report by the Joint Committee on Taxation in 2018 showed that shifting to carryover basis, instead of stepped-up basis, for inherited assets would increase federal revenue and reduce the deficit by $105 billion from 2019 to 2028.

Another benefit of shifting to carryover basis would be to encourage owners to use their assets for more productive purposes throughout their lives instead of merely holding wealth. This could include starting or funding new businesses or investing in local communities and charities.

Source: https://www.thebalancemoney.com/how-the-stepped-up-basis-loophole-works-357485