Stepped-up Basis
As tax season is extended this year, some background is offered on stepped-up basis.
As legislators struggle with tax reform, proposed changes have often included language that would eliminate stepped-up basis.
Tax basis is the amount of a taxpayer’s investment in real property for tax purposes, typically used to calculate depreciation, amortization and other property dispositions. A “step-up” in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. Rather than using the value at the time a decedent originally purchased the property, the typically higher fair-market value of the asset at the time a beneficiary receives it is considered for tax purposes. The asset receives a step-up in basis so that the beneficiary’s capital gains tax is minimized.
As legislators struggle with tax reform, proposed changes have often included language that would eliminate stepped-up basis. What legislators may fail to understand is this concept’s importance to agricultural operations, large and small, that are owned and developed by one generation for decades, and then passed to a succeeding generation. Without stepped-up basis, the tax liability for heirs may be so great as to undermine the viability of their family farms and ranches, as well as the vitality of rural communities depending on them.
Nebraska Cattlemen President Ken Herz supports preservation of stepped-up basis for assets in any future tax relief legislation, saying, “Carrying on the legacy of our predecessors and those that come after us is an important aspect of our industry. It is hard enough to get started or take over the operation from another generation; undue tax liabilities should not be the deciding factor for our heirs.”
Editor’s note: Troy Smith is a cattleman and freelance writer from Sargent, Neb. This article is adapted from coverage of the National Cattlemen’s Association Tax & Credit Policy Committee convened during the 2020 Cattle Industry Convention, hosted Feb. 5-7 in San Antonio, Texas.
