In its thirst to get more tax revenue to fund more give-aways, the Biden Administration has proposed a provision to get rid of the step-up in basis provision when a person dies. The current rule is that when a person dies the tax basis of that person’s assets are the fair market value on the date of death. This rule has been around for over 50 years. In the 1976 Tax Act, Congress repealed the rule and put a new rule into effect, it was so hard to carry out that it got deferred and ultimately repealed.

There are three main problems with the concept. (1) Much of the appreciation in property is due to inflation not real gain in wealth. So, if one adopts carry-over basis, then one should index that basis to inflation which creates even more complexity. (2) How does a survivor know the basis of grandpa’s assets after grandpa dies? Where did grandpa keep that information? Suppose he invested in a dividend reinvestment plan and didn’t keep records. For real estate that is probably easier to track, but if Grandpa made improvements, how do you track that? It becomes an accounting nightmare. (3) Lastly when combined with an estate tax (even if you get the tax added to the basis), it becomes confiscatory.
These are the reasons why the Administration provision is a difficult proposal.