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OT - Tax Hikes [Reprise]

Discussion in 'Politics, Elections & Legislation' started by dmarbell, Dec 5, 2010.

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  1. dmarbell

    dmarbell Active Member

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    I have a question regarding the estate tax. This tax is scheduled to go back to a maximum 50% rate, with a $1 million exemption, starting January 2011, if no action is taken by Congress. I personally think the exemption will be raised to $3-5 million, and the rate might be lowered somewhat, but what do I know?

    Ignore 2010, because it is an anomaly. Under prior law, inherited property was "stepped-up" in basis for income and capital gain tax purposes. That means that if you inherited $100,000 of, say, common stock, your tax basis would be the value at the date of death (basically). So you could sell the stock the next day for $100,000 and pay no income tax on any gain.

    This example could be stock your granny bought fifty years ago for a few dollars, it paid no dividends, so none of the gain had ever been taxed. (So much for the argument that estate tax is always a tax on property that has already been taxed. I take no position here, just pointing out the facts.)

    This step-up occurred whether or not the estate paid any estate taxes.

    So, how would you feel about eliminating the estate tax entirely, but also eliminating the step-up in basis? No death tax, and no tax on inherited property until it is sold by the heirs?

    This type of tax would eliminate the "selling the family farm to pay estate taxes" scenario. If the farm is inherited and operated as a farm, there would not be any estate taxes. If the farm is inherited and sold to create a subdivision, the gain would be taxed at long term capital gains rates.

    This type of tax could be coupled with some limited amount of exclusion, which is the case in 2010. There is no estate tax at all, but the step-up is limited. This would eliminate taxes of any kind on small estates.

    What do you think?

    Danny
     
  2. timberfaller

    timberfaller Well-Known Member

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    The founders never invisioned a "big" government!

    This is one of those taxes that should be done away with period!

    I for one am getting tired of all the "class" envy going on in this country!

    The government is the biggest reason we are in the shape we are in, Get them out and let the private sector run!
     
  3. recurvyarcher

    recurvyarcher Well-Known Member

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    It's a better proposal than what is on the table now.
     
  4. dmarbell

    dmarbell Active Member

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    I should mention that the estate tax is the reason for the step-up in basis. Do away with that tax, and I believe you would do away with the step-up. All inherited property would be taken at "carry-over basis," or the basis that the person who died had. Therefore, lots of inherited property that is now not subject to income and capital gains taxes would become subject to those.

    Danny
     
  5. shelly

    shelly TS Member

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    Inherited property is never subject to income tax and would only be taxed for capital gains if it were sold.

    If I'm not mistaken, the basis step-up is gone for 2010 and the exemption is now unlimited for only this year. Of course, thing go back to step-up and a 1 mil exemption in 2011.
     
  6. dmarbell

    dmarbell Active Member

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    In general, inherited property is not subject to income taxes. Some types of property don't get a step-up, however, like annuities and qualified plans. Since they are tax-deferred, income taxes have to be paid on the full account or the gains, depending on the type of account.

    Also, with elimination of the step-up, there is the possibility that some income tax, that is "ordinary tax rate tax" could be due on the sale of some inherited property. For example, inherited depreciable property like business property could be subject to depreciation recapture when sold, and could be taxed at ordinary rates.

    Those examples are why I threw in the "income and capital gains taxes" example.

    Danny
     
  7. phirel

    phirel TS Member

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    Danny- Did you have to bring up depreciation recapture and ruin my day. Someday, I or someone else will have to come up with a lot of money to pay that.

    Pat Ireland
     
  8. slic lee

    slic lee Active Member

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    NO CAPITAL GAINS, NO INHERITANCE TAX, NO DEATH TAX, NO DEMOCRATS,LIBERALS OR PROGRESSIVES.
     
  9. dmarbell

    dmarbell Active Member

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    Slic,

    Not that you didn't try, but that adds nothing to the conversation.

    Danny
     
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