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CGMthrowaway • yesterday at 6:31 PM • 1 reply • view on HN

Have you considered these factors when considering fairness..?

  1) Many estates contain illiquid assets- family farms, small businesses, etc. Forcing a deemed disposition at death can force heirs to sell just to pay the tax bill

  2) Death isn't a voluntary transaction, and cannot be forecast well, so we are essentially creating an arbitrary tax event/hardship

  3) Determining original cost basis across decades of an ancestor's holdings can create an enormous administrative burden for heirs

  4) Bunching all accumulated gains in a single year at death will push the estate into an artificially high marginal tax bracket

  5) Taxing gains at death discourages long-term wealth building and pushes people toward consumption instead of investment

Replies

toast0 • yesterday at 7:33 PM

IMHO, these are reasonable things to consider, and I acknowledge the hardships. However, my opinion is that similar circumstances leading the similar outcomes is the most fair, and wiping out unrealized capital gains at death can easily result in similar circumstances having unsimilar outcomes.

Specific suggestions or responses to your list:

1) Reasonable alternatives to assessing capital gains tax, due immediately exist. The cost basis could be transfered, as in a gift while living (point 3 applies however); or the tax could be assessed and recorded as a lien on the property, possibly with payment over several years.

2) Death isn't generally voluntary or scheduled or easy to predict a specific date. However, it is easy to forecast that everyone alive today will die at some point. No specific advice other than planning for your estate is something people should probably do once a decade or so.

3) I agree. Especially with assets like homes where cost basis isn't simply the purchase price but also includes improvements. At least for stocks and mutual funds, record keeping requirements for brokerages changed so they have to keep cost basis information in most cases, which helps a lot; but doesn't help for real estate or other capital assets. This is a hard one, and I recognize the value that a step up in basis provides, but I still find it unfair.

4) Yes. It would be nice if there was a way to spread capital gains over many years; not just for the deceased. Perhaps a carryback or carryforward. Or an enhanced 0% capital gains bracket for the deceased or for property disposed upon death; possibly with a carryback to help those who sold capital assets to pay for multi-year end-of-life care and etc.

5) Certainly, avoiding capital gains tax by dieing with unrealized capital gains is an incentive to not sell capital investments. I don't know that it encourages wealth building. Incentivising people to not sell things with unrealized capital gains at end of life causes problems for people too: waiting to sell someone's house, even though they moved into a care home and will never move back distorts the housing market; many people refuse to spend their savings, even when adequate, and instead rely on financial help from relatives or suffer hardships from lack of spending.