The Hidden Tax on Estates in 2010

When the Federal Estate Tax expired on December 31, so did “stepped-up basis” on inherited assets. Under the former tax law your heirs received a stepped-up basis on inherited assets which minimized (in most cases avoided) any capital gains tax when the asset were subsequently sold. Under EGTRRA, however, stepped-up basis ended on January 1. Thus, while all estates are free of Federal Estate Taxes in 2010, estates that have assets with significant growth might end up subjecting the heirs to significant capital gains taxes when the assets are sold. Even worse is the fact that an estate that might not have even been subject to Federal Estate Tax in 2009, might now have capital gains tax issues in 2010, even though the Federal Estate Tax has been repealed.