(National) Taxation Solution(s) Discussion 2022

[Indy]

@SteveWhite

Given how long ago it came into the family, if there had never been a step-up and the current basis was 0, close enough for actuarial work, if not as anal as some actuaries including me would be with personal finances.

Yep, that’s my opinion. In cases where the difficulty is “so long ago”, just assume zero.

[SteveWhite]

@Indy

Yep, that’s my opinion. In cases where the difficulty is “so long ago”, just assume zero.

While I think the step-up should be canceled prospectively and should never have been, I am less convinced that assets which have already been stepped up (have already been inherited) should revert to their original basis. I.e., a basis lower than the basis that would apply to a sale today, and in a situation where today there is no reason to have a record of the original basis.

[twig93]

@Indy

@SteveWhite

Given how long ago it came into the family, if there had never been a step-up and the current basis was 0, close enough for actuarial work, if not as anal as some actuaries including me would be with personal finances.

Yep, that’s my opinion. In cases where the difficulty is “so long ago”, just assume zero.

In some cases that’s reasonable, but not always.

A smaller issue is the step-down in basis. And first cousin to the step-down in basis is realized but unused capital loss carry forwards.

In both cases the capital loss dies with the owner. I prepared a 2021 tax return on a deceased General Electric employee. $63,000 in realized capital losses. That doesn’t even carry forward to the estate to claim a $3,000 capital loss in 2022. It’s just gone.

And his daughter mentioned to me that they inherited some GE stock too. Massive step-down in basis for her and her brother. This guy was not rich… especially since he had a lot of GE stock.

So it’s not always in the beneficiary’s favor. More often than not it is, but not always.

[Indy]

I agree with that. Going back and canceling prior step-ups is just too much.

[Indy]

Yeah, I’ve never understood limitations on realized losses. I’ve assumed there was some opportunity for manipulation there that is beyond me.

My knee jerk reaction is that we should simply allow regular credit (at the cap gains rate), probably excepting wash sales. You might have some other reasons for exceptions.

[twig93]

I think so people don’t reduce their real income too much due to capital losses.

I don’t have a problem with capping the amount of capital losses you can deduct against your actual income. But I think several changes should occur.

1. Dump the marriage penalty. If a single person can take $3,000 then a married filing separate person should be able to take $3,000 and married filing jointly should be $6,000.

2. Index to inflation.

3. I’m uncomfortable with realized losses dying with the owner. They would have been taxed on realized gains. That seems like it should at least transfer to the estate. Or they’re all deductible in the year of death… something.