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Comment by anderber | Hacker News Reader

They seem pretty good at getting their taxes down to zero, while us mere mortals have to be happy with deductions.

Mere mortals are often paying 0 tax on their investments(ie deferred). Same as the ultra wealthy do.

The issue is being a W2 wage slave, err i mean employee

Actually, mere mortals pay tax eventually when they cash out their investments to pay for the things they want. The wealthy get to take low-interest loans against their investments to pay for the things that they want, without ever having to cash out. They never have to pay those taxes, and their inheritors don't either due to the truly insane cost basis step-up benefit you get when assets are transferred to next of kin upon death.

The cost basis step-up is not insane, IMO. It's partly practical ("how am I going to find out the date purchase and basis of some shares my grandfather bought in an account that was doing dividend reinvesting?!"), and partly to avoid unexpected outcomes ("grandpa gave the house to Alice and the rest of his estate to Bob"; if capital gains were due on the house, would Alice have to pay them or would Bob?).

IMO, the basis should be as of the date of death, with any taxes due owed from the estate, not the heirs.

(It's also fairly difficult to repeatedly exploit this as a loophole, as you have to die to take advantage of it. If we're looking to close loopholes, ones that can be repeatedly applied might be more fruitful places to start.)

Stepped up basis came out of the idea that one was already paying estate tax. Now that estate tax has disappeared for many, it seems ridiculous.

The IRS has no problem requiring you to maintain paperwork across generations. For example I've got some series EE savings bonds I inherited from my grandmother, where income taxes were partially paid (you can effectively switch just your savings bonds to an "accrual" accounting method with a specific election). I've got to keep track of this aspect until they mature, so I can subtract the already-taxed income on my own taxes. Same thing.

The answer to your hypothetical is that Alice would have to pay the capital gains, but only when she sold the house. Which is the same thing that would happen currently if grandpa gave away his stuff to Alice/Bob in his lifetime.

For an unsophisticated Grandpa George, he may have intended a roughly even split based on the notional value of the paid off house being the same as the rest of the estate, while the net result would be different after paying CG.

I guess I’m just not too fussed about the government not getting a lick when someone dies and would rather the family and other heirs receive whatever they’re able at what amounts to a sad time.

not trying to say blockchain is the answer to everything, but an asset ownership chain (keyed by the asset, so a tree if you think of it as all assets) . Would be a fantastic system of record for keeping cost basis of assets history.

Eg my home has a linked list of ownership w/ cost basis details back to it's inception/root.

Couldn't disagree more. Buy, borrow, die, is an insidious loophole that is costing the government billions in lost taxes.

> grandpa gave the house to Alice and the rest of his estate to Bob"; if capital gains were due on the house, would Alice have to pay them or would Bob?

Capital gains taxes are paid when the asset is sold. When the house is sold the owner should have to pay the full capital gain tax, not the amount that has accrued since grandpa's death. If alice doesn't want to sell the house that's up to her.

An hour before he died, Grandpa George could have sold the house and excluded $500K of capital gains (if his spouse died within the prior two years) or $250K otherwise. He could then pass his estate tax-free to heirs (assuming it was a typical "normal person sized" estate). In that case, the value of the house is now in [stepped-up/not taxed] dollar bills.

Why should the fact that he transferred a minute after he died rather than 60 minutes before make a difference to the taxes owed? Sell it for a fair market price to Alice a minute before you die, then transfer the proceeds of the sale to her as part of your estate. Same effect.

I don't care about excluding up to $500k. I care that billionaires entire fortune is excluded when they die. We can go round and round about which loopholes make sense. But in the end I don't think there is any reason that billions of dollars of equities should be excluded from paying capital gains taxes just because their owner died. You shouldn't get a tax advantage for dying. Selling everything you own the day after you die should have the same tax implications as selling everything the day before you die.

I care more about what happens to the estates and heirs of the 3M less than millionaire regular Americans that die every year and what happens to their estates than I do about the ~15 billionaires that die each year.

> Selling everything you own the day after you die should have the same tax implications as selling everything the day before you die.

I agree with that . That's exactly why the vast majority of family homes would be passed along tax-free, with stepped-up basis (as was my point above: "the basis should be as of the date of death, with any taxes due owed from the estate, not the heirs" [which I thought earlier you "Couldn't disagree more"]).

No they don't. Mere mortals don't receive enough income from their tax-deferred investments (lol), social security, and elderly side-hustle (part time cashier at Ross?) to incur a tax liability. Even taking full advantage of the senior discount at Denny's they won't leave behind much to their kin.

+1 the tricky part is realizing that if someone isnt earning enough to pay taxes, they're often net recipients of "stuff" (ie, money, services, etc) .

This means a lot of society has a net negative tax rate in the sense that they consume more than they give.

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