If you’re reading all the debates about the return of estate taxes, then you’ve probably run across the “step-up in basis” phrase.

What is this mysterious step-up? And why do you care?

Actually, the step-up is what will keep your loved ones from paying large capital gains on the increased value of your estate.

Basically, the step-up rule says that assets get a new value when they pass to an heir and this new value is the one that’s used to determine if any capital gains taxes are owed when the property is sold.

Let’s say for example, that you purchased the family home for $50,000 decades ago but now it’s worth $150,000. Without the step-up, your heirs would pay capital gains taxes on the $100,000 profit if they sold the home after your death.

But with the step-up, a new value of $150,000 is given to the home and if your heirs sell it after inheriting the estate, they won’t have to pay capital gains tax on the new value.

To learn more about estate taxes and how they might affect your estate plan, contact our office today.