‘Step up’ to estate tax savings under this rule
If you continue to own appreciated capital assets until you or your spouse dies, the tax consequence could be greatly reduced, or maybe even completely eliminated, when the assets are eventually sold, courtesy of Section 1014(a) of the Internal Revenue Code, which generally allows an unlimited federal income tax basis step-up for appreciated capital assets owned by a person who passes away.




With the current estate tax exemption as high as it is, how necessary is estate planning?
For many physicians, proactive estate planning may feel less relevant than it was in the past. The American Taxpayer Relief Act of 2012 (ATRA) provides relatively generous estate tax rates, limits, and rules for estates.
Specifically, the ATRA reduced the top marginal federal estate tax rate from 55% to 40%, increased the federal estate tax exemption from $1 million to $5 million (adjusted annually for inflation), and made portability of the estate tax exemption permanent. The federal estate tax exemption is $5.43 million for 2015, and it will go even higher in future years if it continues to be indexed to inflation.
In most cases, estate planning for federal tax purposes now focuses on increasing the tax basis of transferred assets, reducing capital gains on asset sales, and taking advantage of capital losses while you're still alive.
If you continue to own appreciated capital assets (such as stocks, mutual fund shares, real estate, and collectibles) until you or your spouse dies, the tax consequence could be greatly reduced, or maybe even completely eliminated, when the assets are eventually sold. This taxpayer-friendly outcome is courtesy of Section 1014(a) of the Internal Revenue Code, which generally allows an unlimited federal income tax basis step-up for appreciated capital assets owned by a person who passes away.
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