With Federal Estate Tax on Hiatus, New Rules Boost Capital Gains Tax Liability

Don’t celebrate the temporary disappearance of the federal estate tax too soon. In the absence of this tax, Congress changed the rules governing capital gains tax on sales of inherited property, creating additional tax liability in most situations. 

Under prior federal law, assets held by an individual at death received a “step-up” in tax basis to their fair market value. This step-up often reduced or eliminated the capital gains consequences of a sale of such assets.

Now, under tax law that took effect this year, the step-up in tax basis has been reduced and in some cases eliminated. This can result in significant capital gains when an inherited asset is sold.

This new provision should be considered in any estate planning activities.

Neil Maxwell can be reached at nmaxwell@hhmlaw.com or at (330) 744-1111