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What Is The Step Act? Sensible Taxation And Equity Promotion Act

According to a press release put out by Maryland Senator Chris Van Hollen and supported by Senators Chris Van Hollen, Cory Booker, Bernie Sanders, Sheldon Whitehouse, Elizabeth Warren and AFL-CIO, American Federation of Teachers, Americans for Tax Fairness, Coalition on Human Needs, Institute on Taxation and Economic Policy, American Federation of State, County and Municipal Employees (AFSCME), Patriotic Millionaires, and NETWORK Lobby for Catholic Social Justice, this legislation would close the stepped-up basis loophole by taxing unrealized capital gains when heirs inherit huge fortunes on which the original owner never paid income taxes.

Problem: Tax-free stepped-up basis
Working Americans pay taxes every year on their income. But the income tax is more optional for the wealthiest families, whose income often comes from their wealth rather than their work. Income from wealth accumulation is supposed to be taxed as capital gains when someone sells an asset for more than what they
paid for it. However, when someone dies with assets that increased in value during their lifetime, income taxes are never collected on these capital gains – even if their heirs sell the asset the next day.
This is called the “stepped-up basis” loophole, because it allows heirs to step up their cost basis in inherited property to match the value on the date of the previous owner’s death, meaning that only capital gains above that point could ever be subject to income taxes.

Written by TaxConnections Admin | Posted in Capital Gains Taxes

Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. Under Section 1031 of the IRC, however, if you reinvest the proceeds from the sale in similar property as part of a qualifying like-kind exchange, the tax code provides an exception, and allows you to postpone paying tax on the gain. It is very important to note that the gain from a like-kind exchange is not tax-free; it is only tax-deferred. You will eventually pay the tax on the gain if and when you dispose of the new property acquired in the exchange.

To qualify under the Section 1031 nontaxable exchange, a trade must meet all six of the following conditions: Read More

Written by Milton Boothe | Posted in Capital Gains