Retiree Tax and Estate Concerns
As an 80 year old retiree in Illinois I have two questions/concerns:
(1) Presently the State of Illinois does not tax retiree benefits (e.g. Soc.Sec., 403b distributions, etc.). Do you think this will change considering the State’s pathetic financial situation?
(2) When my wife and I die will our heirs (our children) be able to inherit our assets without paying taxes because of the step-up in cost basis….or will Congress change this, especially due to the Federal need to offset Covid-19 costs?
Terry Says
I think the first is a reasonable possibility. In fact the idea of Illinois taxing retiree benefits was brought up last year by Mayor Lightfoot as part of a potential trade for support by the governor for more help for Chicago.
The “step up” basis for inheritance taxes says that even if you bought a stock or a house years ago at a much lower cost than today, and you die owning the asset, your heirs get the value on the date of death as THEIR new “cost basis.” So they could sell it a week later without paying taxes on any gains. And, currently the combined estate and gift tax exclusion is $11.2 million — so unless your estate is over that amount in total, thee are no estate taxes due.
Candidate Biden has said he would move to increase tax rates, including capital gains taxes. AND he said publicly that he would support an END to the concept of the “step-up” basis at death. So, if you bought a house 40 years ago for $400,000 and it is now worth $1.2 million, and your child sells it after inheriting it — he/she would pay taxes on $800,000 of gains at whatever the rate is then. The inheritor would inherit the “cost basis” of the decedent!
All of these changes could be very costly to people who worked, saved, paid taxes — and want to leave property to their children.
