Estate Planning

Questions About Estate Tax

Did the Tax Cuts and Jobs Act Preserve the Step-Up in Basis?

by Rania Combs

Under our country’s tax laws, it is the person making a gift (the donor) who is responsible for any gift tax that is due. The gift’s recipient (the donee) is not required to pay any income taxes on the value of the gift received. However, the donee is responsible for paying any capital gains taxes that are due if and when the gifted property is sold.

When someone receives a gift during the donor’s lifetime, the gift’s recipient is deemed to take the property at donor’s cost basis (the original value of the property).  So generally, if the property has appreciated and the done sells the property, then the donee would be required to pay capital gains taxes on the difference between the sales price and the original value of the property.

Different rules apply to inherited property. When the transfer is deemed to have occurred at the donor’s death, the donee receives a step-up in basis to the value of the property on the date of death. This can result in significant tax savings when the property is sold. If the property is sold for the date of death value, no capital gains tax would be due.

Although there had been discussion of eliminating the step-up in basis, the Tax Cut’s and Jobs Act kept it intact. This means that the heirs of those who owed appreciated property they never needed to sell will be able to avoid or minimize capital gains taxes when the inherit the property.

About Rania

Rania graduated magna cum laude from South Texas College of Law Houston and is the founder of Rania Combs Law, PLLC. She has been licensed to practice law since 1994 and enjoys helping clients in Texas and North Carolina create estate plans that give them peace of mind.

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