Stepped Up Cost Basis
Have the rules allowing a step up in cost basis changed for 2010? If so, where can I find information on the changes.
Thank you
Have the rules allowing a step up in cost basis changed for 2010? If so, where can I find information on the changes.
Thank you
Permalink Submitted by Anonymous (not verified) on Mon, 2010-01-25 17:00
Are you talking about an NUA? That is the only “stepped up” cost basis I know of relating to IRAS.
pmk
Permalink Submitted by Alan Spross on Mon, 2010-01-25 17:10
Yes, but these changes could be erased if Congress passes legislation retroactive to January 1. With the estate tax suspended for 2010 as of now, a modified carry over regime is implemented that limits basis adjustments. Basis adjustments are limited to 1.3 million in asssets for anyone with an additional limit of 3 million of assets left to a surviving spouse. This is only for 2010 deaths, with the former step up basis rules coming back in 2011 with a unified credit of only 1 million.
At this time, estates really do not know what they are looking at because Congress may act retroactively or they might decide to act just for 2011 forward leaving the above provisions in force for 2010. If the current provisions remain for 2010, heirs who sell appreciated assets in 2011 and beyond may be faced with not only capital gains, but a higher LT cap gain tax rate.
This is causing expensive estate planning reviews and modifications to take place for many people, and this could easily have been prevented. Congress has had 8 years to prepare for this but it apparently was not important enough to address.
Permalink Submitted by Brendan McPoyle on Mon, 2010-01-25 17:19
Alan, thanks for the excellent information. It was difficult to find information on this topic, now I know why. It seems that there is not concrete answer.
Thanks again
Permalink Submitted by Alan Spross on Mon, 2010-01-25 17:46
pmk mentioned NUA in conjunction with the 2010 changes.
Since the cost basis for NUA shares is applied due to a triggering event, only one of which is death of the employee, I do not think that anything would change. Once the NUA shares are in a taxable account, the NUA is considered IRD and does not get a basis adjustment now when the employee passes so this would not change for 2010.
Since NUA is still considered IRD like an IRA, the 1.3 million allowed basis adjustments would not apply to those shares either, so they would be treated the same as they were previously.However, the adjustments could be applied to any additional appreciation after transfer to the taxable account.
Since many other taxable assets will NOT get a basis adjustment to the extent they used to, this might make NUA marginally more attractive in comparisons based on the lack of a basis adjustment for beneficiaries. Downside is the LT cap gain may well be increased.