Legislators and the public should be aware that carry-over basis problems of estate tax repeal could be a nightmare, according to the American Association of Attorney-CPAs.
"If the only financially feasible way to permanently repeal the estate tax is to institute a carry-over basis regime which essentially replaces the estate tax with an income tax, serious consideration should be given to retention of the federal estate tax with a lowering of the tax rate and an increase in the amount exempt from tax," said AAA-CPA president Bernard Eizen, Esq., CPA, of Philadelphia.
Under present law, the tax basis of inherited property becomes its fair market value on the date of death or the alternated valuation date, thus giving heirs a fresh start. Repeal of the estate tax as now proposed would partially repeal the fresh-start rule as well, causing heirs of larger inherited estates to be subject to higher taxable gains upon the sale of inherited property.
"How would you determine the cost of inherited property that might have been purchased any time within the last 40 years when the person who bought it is dead and cannot tell you?" said Atlanta-based C. Murray Saylor Jr., Esq., CPA, a past president of the association.
Sydney S. Traum, Esq., CPA, spoke about the unfairness of subjecting inherited assets to a transfer tax when the items may have been purchased with money that had already been subject to an income tax. "In many cases the funds used were from tax-exempt sources such as municipal bond interest, gifts or previous inheritances," he said. "Furthermore, the argument fails when you consider that people pay sales taxes and real estate taxes on items that were purchased using funds that were already subject to income taxes."
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