Comment by skybrian
7 hours ago
Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot.
And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.
The step up basis makes sense in a world where you still have to pay substantial inheritance taxes. But with minimal to no inheritance taxes, the step up is a giveaway.
It’s also a practical policy. It’s far easier to know the stepped-up basis on the date of X’s death than it is to know the basis that X had in something once X is dead.
Which argues in favor of the inheritance tax mentioned.
There could be other solutions too -- say, require a virtual wash trade at time of inheritance, so the capital gains from the parent's lifetime are taxed at time of death and the child gets the stepped up basis. Somewhat different than an inheritance tax, but at least not a giveaway.