Daniel Durst: Geographic Income Tax Marriage Equality: A Proposal to Expand the Double Basis Step-Up (February 9, 2021)

Daniel Durst, an independent writer, has made available for download his article, “Geographic Income Tax Marriage Equality: A Proposal to Expand the Double Basis Step-Up”, to be published in the 2022 Michigan State Law Review (forthcoming Spring 2022). The abstract is as follows:

Surviving spouses in community property states enjoy a significant, but unintended, income tax advantage over surviving spouses in other states. The advantage, known as “the double basis step-up,” generally eliminates capital gains for surviving spouses in community property states. This geographic inequality incentivizes inefficient behaviors for legislatures and taxpayers in common law property states seeking to obtain the benefits of the double basis step-up. Furthermore, taxpayer strategies to obtain a double basis step-up exacerbate wealth inequality, as they are most likely to be implemented by individuals with not only the motive but also the wherewithal to obtain sophisticated tax advice.

This article proposes a novel approach to eliminate the geographic inequality of the current double basis step-up rule by decoupling double basis step-up eligibility from state-law defined “community property.” Specifically, this article proposes granting a double basis step-up for every surviving spouse’s “marital property,” using a nationwide definition. Expanding the double basis step-up in this manner would create geographic equality and reduce behavioral inefficiency without impairing tax administration. Furthermore, this proposal could be incorporated into existing basis step-up rules, which have proved to be very persistent despite frequent objections, making it an especially pragmatic solution.

To see the full article, click: “Geographic Income Tax Marriage Equality: A Proposal to Expand the Double Basis Step-Up” by Daniel Durst

Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.

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