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Originally Posted by BobC
If you really want to be concerned about some of these proposed new tax laws, also pay attention to the idea they have about doing away with stepped-up basis when someone passes away. There is no specific income or dollar amount threshold being mentioned, nor any true idea of what this could end up being and who it could effect. For now though under current laws, when someone passes away their assets are inventoried, valued, and depending on the total value of all the assets , prior gifts, and possibly many other factors, the estate may be subject to and owe a federal estate tax on the decendent's assets. Meanwhile, the assets that are then left to the decedent's children or others (not including a surviving spouse) are generally given a stepped-up basis to their FMV (fair market value) at the time of the decedent's passing. So under current law, if you passed away and left your lifetime card collection to your children, their tax basis would most likely be the FMV of the collection on the day you passed. So assuming your kids consign the collection to an auction house for sale not long after your passing, it will most likely sell for close to that FMV, and probably results in little to no taxable gain to your kids, even if had acquired cards decades ago at signicantly less than what they are now worth today. So in a possible worst case scenario, if there is a new tax law enacted that does away with this basis step-up, in my example the tax basis of your collection now in your children's hands could be what you originally paid for everything. So now if they auction everything off, they could end up with significant gains that they would owe taxes on. And another potential issue is, how do your kids know what your original basis in the collection even is? Now for someone with a signicant collection, they are going to want to somehow document and support their tax basis in that collection so they don't make a problem for their heirs. Just something else to be aware of and to keep an eye on to see where it may go
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I dont mind eliminating the step-up of basis on death to the extent that assets are passed tax free. In other words, if the estate tax exemption is $5mm, and someone dies and leaves a $5mm asset, with a $500k basis, to their heirs, I have no problem with the heirs taking the asset with a $500k carryover basis. That is sound tax policy - defer the tax until realization, not eliminate it. At the same time, I would fully expect that any asset subject to estate tax would be passed to heirs with a stepped up basis because tax has already been paid. That too is sound tax policy. Query what happens when an estate worth $20mm is passed, $5mm is exempt, and tax is paid on $15mm of wealth/value - how do you determine which assets get a step up and which get a carry over basis? I guess that is what regs are for.....