Rationale For Stepped-up Basis
One possible explanation for the stepped-up basis rule under IRC § 1014 is to avoid the difficulty of ascertaining a decedent's adjusted basis in property that could have been held for decades. A second theory is that a decedent is not likely trying to evade taxes by passing property at death, so mandating carryover basis, which would preserve the gain in the beneficiary, is unnecessary. Third, the federal government imposes estate taxes on transfers of wealth at death based on those assets values as of that date. Were no step up in basis allowed, the federal government could potentially receive a windfall from estates subject to estate tax by recovering federal estate tax based on capital assets' values as of a decedent's date of death, while also receiving capital gains tax when such assets are sold by an estate or a beneficiary based on the difference between the value of the asset when sold and the price at which such asset was purchased by a decedent.
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