Quote:
Originally Posted by pbspelly
I've never understood the justification for the stepped-up basis, particularly for things like stocks. Someone gives you stocks they bought for $5000 that are worth $10,000 when they give them to you, and you sell them for $10,000, you owe capital gains on the $5,000 gain. Someone dies and leaves the same stocks to you in their will, and you sell them for $10,000, you owe nothing on the $5000 gain. Why does their death wipe out tax liability for the $5000 gain? I'm not a tax lawyer, and maybe there is some justification, but I don't see it.
Likewise, the carried interest treatment for hedge fund manager income has always seemed like a huge loophole to me.
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As to the former, the justification is that the government has already had its bite at that money via the unified tax credit. When you die right now you can pass the first $11.7 million tax-free. After that you pay estate tax. The asset has already been 'taxed' when it passes, with valuation at fair market value, so the idea was that the G doesn't get a second bite at the asset at the decedent's basis when the heir sells it.
As to the latter, it is total BS: there is no reason other than good lobbying on the part of the rich for earned income to be taxed at a higher rate than any other income. The idea of investment being encouraged is crap; no one who builds a business does so based on taxes, except the accountants who file them.