The Setup:

What changes are being proposed in Congress when it comes to lifetime exemptions and the step-up in cost basis? While many of these changes are not set in stone, we want to keep you updated and prepared.

The Combination and Key Points: 

On this episode of Unlocking Your Financial Future, we are continuing our discussion on potential tax reforms and how they could impact you. We will be going into potential changes when it comes to lifetime exemptions, the step-up in cost basis, and more. 

Lifetime Exemptions

How much money can you give away without an estate tax? Currently, in 2021, it’s $11.7 million per spouse, $23.4 million together. Anything under that number you can gift throughout your life without an estate tax. Business, private business stock, marketable securities, and real estate. For most people, that’s a big number! 

You can gift $15,000 of cash a year to anybody and that doesn’t impact lifetime exemptions. Now a lot is going on in Congress that could change these limits. We’ve heard they may bring the limit down to $1 million or $3 million or increase the estate tax to 45%. There is a lot up in the air. 

If nothing happens these rules sunset back to what they were before the Trump tax law changes, bumping them back to around $6 or $7 million. So even if nothing happens there will still be pretty dramatic changes. Be careful what you read and don’t act on hypotheticals. 

Step-up In Cost Basis

Say you inherited AT&T stock that was passed down in your family and the original cost basis was $2. Every time a family member that held that stock passed away, on that date of their death, whatever the stock price was, became the new cost-basis for the person who inherited it. 

If someone passed away today and passed that AT&T stock on, the $25 or $26 it’s at today will be the new cost-basis per share. All those gains that could have happened will now be a step up in cost basis and those gains are basically eliminated when it comes to paying taxes. 

To put some numbers on it, if your great-great-grandpa started with $10,000 in shares and you inherited it at $200,000, that $190,000 in growth won’t be taxed. If it’s a loss you can always use tax-loss harvesting to your benefit. 

The biggest area the government is addressing is in this situation is real estate. Most people own a house and can pass that down through generations, the government is losing tax dollars there. 

A lot of these changes aren’t set in stone. We may be right and we might be wrong in our predictions. It’s important to stay on your feet though and not make any dramatic changes to your plan until we know what the future holds. We are here to help our clients navigate these changes. 

If you have any questions, please reach out to us at https://www.baschrock-fg.com/ or give us a call at 330-473-1060

To hear more about this strategy and other potential tax changes you can listen to the full episode or use the timestamps below to find a specific segment.

1:03 – Lifetime exemptions

4:39 – Step-up in cost basis

10:06 – Some other probable changes

13:20 – Learning about our options

Key Quote: 

Be careful what you read and don’t act on hypotheticals.

Thanks for listening to another episode of Unlocking Your Financial Future. We’ll talk to you again next week!


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Potential Tax Reforms Part 1

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