Wills and Trusts

Wyatt, Tarrant & Combs, LLP

SECTION 1014 AND UNDERSTANDING THE TAX NATURE OF CERTAIN ASSETS – Part III

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SECTION 1014 AND UNDERSTANDING THE TAX NATURE OF CERTAIN ASSETS – Part III A

The Nature of Particular Assets

  1. Generally

Understanding how and to what extent assets will benefit from a “step-up” in basis is critical to the estate planning process today.  Obviously, certain assets like highly-appreciated assets will benefit more from the “step-up” in basis at death than cash (which has a basis equal to its face value which is equal to its fair market value) or property at a loss (a “step-down” in basis).  Moreover, appreciated assets like gold that are considered “collectibles”[1] under the Code, benefit more from a step-up in basis than other appreciated capital assets because the Federal long-term capital gain tax rate for collectibles is 28%, rather than 20%.

If one were to list asset categories or types, starting with those that benefit the most from the “step-up” in basis and ending with those that benefit the least (or actually suffer a “step-down” in basis), it might look as follows:

(1) Creator-owned intellectual property (copyrights, patents, and trademarks), intangible assets, and artwork;

(2) “Negative basis” commercial real property limited partnership interests;

(3) Investor/collector-owned artwork, gold, and other collectibles;

(4) Low basis stock or other capital asset;

(5) Roth IRA assets;

(6) High basis stock;

(7) Cash;

(8) Stock or other capital asset that is at a loss;

(9) Variable annuities; and

(10) Traditional IRA and qualified plan assets.

A full discussion of every asset type listed above is beyond the scope of these materials, but a number of them deserve additional consideration and discussion and will be featured in the upcoming posts under this topic.

Turney P. Berry

Louisville, Kentucky

[1] § 1(h)(4).

Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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