Step-up or Step-out: An Asset’s Choice

The IRS regularly makes rulings on situations that taxpayers face, and then publishes those rulings to give guidance to other taxpayers to follow when they find themselves facing similar situations. The recently published Revenue Ruling 2023-02 gives helpful guidance for estate planning. This ruling found that property “acquired from or to have passed from the decedent” usually has its fair market value as its adjusted basis. (IRC § 1014). This phenomenon is known as “step-up basis.” This rule is quite favorable for taxpayers, in fact at nearly $44 billion per year, it is one of the most significant tax expenditures the federal government engages in. A tax expenditure is an amount of money that the federal government forbears through favorable treatment in the tax code.