The new IRS ruling means that property in a trust that is not included in a person’s taxable estate no longer gets that “step-up in basis,” meaning capital gains taxes can be collected, according to Kiplinger.
“What does that mean? Essentially, in a move that is likely meant to make sure that as many estates as possible become subject to paying estate taxes, if you establish an irrevocable trust that is not set up properly, you will lose the step-up in basis,” Kiplinger wrote.
More welfare for CPAs.
Exactly, CPAs probably lobbied for this change.
My version of ‘fight the power’ is to spend the money myself before I croak.
I doubt this change has anything to do with welfare for CPAs. It will reduce the tax basis, maybe substantially, on residences and other real property placed in irrevocable trusts. That will increase income when those properties are sold and generate higher taxes from those who use irrevocable trusts to pass a residence to children and avoid having to sell it or repay Medicaid, and to those who use them to pass property to future generations.
@jimtoo if I am reading this correctly, this only impacts irrevocable trusts that are not part of settling an estate. So normal estate execution that sets up Irrevocable Trusts and funds them with assets, including a house, are not impacted ? Also, if the properties placed into the Trust are investment, then the 1031 option would still be available to the beneficiary ?
As I read the rule, I think (stretching the definition of that word) it would apply to the tax basis of any property transferred to an irrevocable trust. So a property that transferred on death to an irrevocable trust would take a tax basis on the date of transfer (even if stepped up). Whenever that parcel is transferred from the trust to a taxable entity, that would be the basis transferred with the property. from the ruling: “the basis of Asset immediately after A’s death is the same as the basis of Asset immediately prior to A’s death.”
I am definitely not up to speed on 1031 transfers, so my answer to that question would likely be meaningless.
Here’s the revenue ruling.
By the way, the cited article states “quietly changes rule.” Other sourced do the same. As I see it, the usual process was followed for the publishing a revenue ruling. The IRS does not publicize any revenue ruling outside of that process. I suspect it means that the media was completely clueless about the rule until someone else told them that it might mean something.