Step Up In Basis: Tax Breaks for your Inheritance - YouTube

Okay- Today's Cardinal Lesson: we're talking about this thing called Step Up in Basis,

and you may have heard this in the news, and some of you may wonder, ‘What in the world

are they talking about?’ Okay and so the basis of a capital asset, like some stock

that you own, or if you owned a building and you bought a building for $200,000 several

years ago. And you now were to sell it for $700,000 and you earn $500,000 of capital

gain. The Basis is the $200,000 that you paid when you first bought the thing. Okay, so

whenever you sell a Capital Asset, and a Capital Asset could be some shares of Stock, it could

be a car that appreciated in value- was just not too many of those, it could be a farm,

it could be a business, it could be anything that you buy and you pay a certain amount

of money and then many years later it's worth substantially more or just more -that's a

Capital Asset. That you have held and you don't pay taxes as you go along on that appreciated

value. It's just, it just is worth more but you're not having to pay tax as you go along,

and so what's been in the news lately is they've been talking about eliminating this in the

income tax system or in the estate tax system. So, when somebody dies and then they pass

their assets on, like that building I was talking about earlier, if a person had bought

a building years ago and it was $200,000 and they hadn't depreciated, it just that's what

they put in it, and then after their death it sold for $700,000. Or even at their death,

it's just given to their son or transferred to their son. Their son's Basis is “Stepped

Up” from $200,000 to $700,000. So in other words, he could turn around and sell that

and pay no taxes if he got $700,000 net for it. So this is a pretty big deal when you're

driving down the road, you know around this area the Triangle of North Carolina, a lot

of places in America, you're going down, you see housing development, housing development,

and then all of a sudden you got a farm with cows grazing in the pasture, and then there's

another housing development on the other side, and you're saying, ‘Why in the world would

that- how can that guy afford or that person afford to graze cows on that pasture land?’

You'd think he'd just sell it to a developer and he'd get you know $2- $200,000 an acre

or something. And the reason is, possibly is, first of all, it's his farm and he doesn't

want to move and then it also could be that they're waiting because they know it goes

up in value every year and they're waiting until the next generation or the next generation's

rating. Because, he's in a nursing home and they're knowing that he's going to pass at

some point and this property could be going in value from you know for $5,000,000 or something

and his Basis in that while he's alive is $200,000, and then when he passes away it's

going to get “Stepped Up” to 5 million and he's going to owe or his beneficiaries

are going to owe no Capital Gains Tax. So a Step Up in Basis happens at death, and what

they're talking about, or proposing is eliminating that- of saying this is a freebie that goes

to America where stuff is appreciated a lot when it passes to the next generation. They

can sell it after that, just take the money and they owe no taxes to the government. And

then some of the latest proposals, and these are only proposals they're talking about,

only eliminating it for people that have over a $1,000,000 estate. So there's a lot of things

floated around, and it takes a lot to change the tax law, and that's why I don't usually

talk about proposals too much. Because until the stuff's really law, I'm simply talking

about that, because it's it's out there in the world a lot and people are getting an

awareness of this Step Up and Basis. Now if you've, you know, if you own some stock that

you maybe you purchased this a long time ago or maybe your Mother did and she passed it

onto you or your Father, and and so you've held these shares and you've owned them for

a long time. So they've substantially appreciated since you've had it and you're kind of wondering

like what can I do with those- you're thinking about selling them maybe because you parents

held them, you held them, maybe you need the money. And if you need the money just sell

them or sell part of them if you hold them till your death then whoever's named to receive

them is going to get a Step Up in Basis of whatever they're trading for on the date of

your death. So things, Capital Assets, can pass from generation to generation with a

Step Up in Basis and no Capital Gains Tax, there's another alternative to this, is with

the shares of stock or the land or anything else you could donate that in pieces to the

charity of your choice. So if you wanted to give those to your church, or you want to

give them to some society that you belong, or some non-profit, you could do that a little

bit of year and you can actually take as a Charitable Deduction, the value, on the date

you give the Deduction. Even though your Basis is way lower, so there's a way to give things

away and actually get a Tax Deduction, and avoid the Capital Gains if you give them to

a qualified charity. So there's a lot of things we can do in planning, I just generally wanted

to define Step Up in Basis and I want to finish this video where I want to talk about the

Primary Residence, because there are other ways to deal with the Primary Residence- which

just happens to be many people's largest Capital Asset. In most families in America, they own

a home and they've owned a home for a lot of years, and they may even be- you know have

lost their spouse, and they may be a single person living in this house. Uh, widow or

widower, and they've owned it for a lot of years. It's appreciated a lot in value and

now they're thinking about selling it and moving to somewhere else that's more suitable-

downsizing, and I have a lot of people come into me that think they're going to owe taxes

on this Gain that they've gotten on their house. And they're worried about it and they're

surprised to find out that there's a special exclusion for the sale of your Primary Residence

if you've lived in the home two of the last five years. That's all you gotta certify if

you lived in the home, that two of the last five years. You owe no taxes on the first

$250,000 of Gain, that's if you're a single person. If you're a married couple you both

get that so you've got up to a $500,000 Gain on a principal residence no taxes and that's

really for people that are not aware of that and how it works. I wouldn't rely on it, just

on this video, you need to get some professional advice but that's a beautiful thing and that

doesn't have anything to do with selling it after you pass away. And in my experience

most of the time the children don't want the house that Mom and Dad lived in. Now there's

exceptions to that, there's there's people that either Mom and Dad want to live there

or the kids, one of the kids wants to move in there, but my experience is most of the

time the kids don't want the residence, anyhow. So with any of this stuff, I don't really

like tax planning to drive my clients life decision making, you know, in other words

taxes are a factor and they're an important factor but when they're the only factor or

the beginning factor and they're all we talk about, and then they're the ending factor

on making our decisions. I usually give those kind of clients ‘How about we talk a little

bit about what you want and what your lifestyle calls for’ and what's important to you and

then then we're going to look at how much taxes you're going to have to pay to get that.

And then maybe we won't do it but I I just want to have a word of caution and when I

have people that really start with taxes are driving everything, I'm going to start right

away giving them some feedback that I think that that I’d like to see that become a

little less of an importance in their decision making, and just make them in their personal

life or their enjoyment as a couple to be more important than taxes. So we're a small

family owned insurance agency. We're not a call center. We're in Durham, North Carolina.

I’m Hans Scheil, I have a staff that's wonderful if you call in to us and you want some help

with any of these things that you're hearing me talk about on YouTube, we'll be glad to

help you. It's a, you know, it's a risk-free deal we're not going to call you repeatedly

or sell your information to someone else we're really here to help people. We'd love to hear

from you, I'm Hans Scheil and I thank you for listening.