How can step up basis save my children capital gains taxes?


Attorney Tom Olsen: Let’s go to Mike in Melbourne. Mike, you’re on News 96.5, go ahead.

Mike: Hi, good morning, thank you. What I’m trying to do is when I pass the profits on to my kids that the value of that property rebasis to the time of passing not to what it is.

Attorney Tom Olsen: Got you. Okay, so, Mike, that makes some sense. So, Mike, what you’re talking about is a good provision within the internal revenue code called the step-up basis. The step- up basis says, when you own an asset, whether it’s a piece of property or a corporation that owns assets or the painting on your wall or stock in a company -- when you own assets and your children inherit those assets upon your death their basis for capital gains tax purposes is a value at the day of your death.

So if you bought a house back in the good old days for $50,000 and you pass away and your children inherit that house from you through a traditional will, through a living trust, through an enhanced life state deed, their basis for capital gains purposes will be the value at the day of your death. They sell it for $200,000, they pay absolutely no capital gains taxes. Mike, you can see that the step-up basis is a good thing. It is important that you get it on any asset that has a low basis and a high value.

Mike, these assets are owned by your corporation as long as the kids don’t get any stock in that corporation until you’ve passed away, they will get the stepped-up basis on the assets within that corporation. Mike, I hope I answered a question for you. All I can say is Mike, if you want to get a step-up basis on your corporation stock you cannot give them that stock during your lifetime. Stated in another way, they have to inherit that stock upon your death. Mike, if you want more information, you’re welcome to call my office next week at 407-423-5561.