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Prejudice and Injustice - The "Stepped up Basis" for Property Valuation

By
Real Estate Agent with COMPASS DRE# 01339266

Do you know that when a spouse in a straight marraiage dies, and the property (owned by the two spouses) is valued for Estate Duty purposes, there is what is called a "stepped up basis" which is not applicable in Gay Marriages or Civil Unions.

Practically, what this means is that if a property is valued at (for example purposes) at $100,000, and the surviving spouse sells the property the day after the one souse dies, Capital Gains Tax is payable on the difference between the Selling Price and the "stepped up basis".

In my example above, if the stepped-up basis goes from $100,000 to $300,000, and the property is sold for $300,000, then no Capital Gains Tax is payable.

In a Gay Marraiage or Civil Union (which is not recognized on a Federal level), in the example above, the surviving spouse or partner is liable for Tax on $200,000 (The difference between the Cost and Selling Price, since the "stepped up basis" does not apply to gay couples).

Now I ask in all fairness: Why should the surviving gay partner be liable for tax on $200,000 while the straight surviving spouse is liable for nothing?

This is prejudice, discrimination and injustice in it's ugliest form.

Comments(7)

COMPASS PALM SPRINGS | Stewart Penn
COMPASS - Palm Springs, CA
COMPASS Palm Springs - Broker Associate

Anthony - I too am for equal rights, not special rights. What's fair for one should be fair for all.

May 19, 2008 07:19 AM
Don Fabrizio-Garcia
Fab Real Estate - Danbury, CT
Owner/Broker/Trainer - Fab Real Estate

Stewart - it's even worse:  If one partner dies, the other partner inherits the home and PAYS TAX on that "inheritance."  Even if they were both co-owners of the home - then they need to pay tax on the 1/2 of the home they just "inherited."

Unfortunately, if that happens to me or my partner, then chances are we'll end up having to sell the home and uproot our children.

There's no need for special rights.  Just equal.

Jul 13, 2008 12:53 PM
COMPASS PALM SPRINGS | Stewart Penn
COMPASS - Palm Springs, CA
COMPASS Palm Springs - Broker Associate

Don - My partner and I considered that dilemma and have life insurance to address that problem.

If only people in power would take time to understand the practical implications of what they do, they may be able to empathise.

Jul 13, 2008 01:07 PM
Tchaka Owen
Galleria International Realty - Hollywood, FL

Stewart - I was unaware of this......is this across the country (ie, federal tax thing) or by state?

Jul 13, 2008 02:10 PM
COMPASS PALM SPRINGS | Stewart Penn
COMPASS - Palm Springs, CA
COMPASS Palm Springs - Broker Associate

Tchaka - this is applicable in every State, regardless of whether the State recognizes gay marriage or not.

Jul 13, 2008 04:12 PM
Don Fabrizio-Garcia
Fab Real Estate - Danbury, CT
Owner/Broker/Trainer - Fab Real Estate

Stewart - we've obtained life insurance, too.  But, that, too, is then taxable because we are not legal spouses in the eyes of the federal government.

The problem we have is that with three kids, the surviving partner gets hit with the tax on what is then considered "inherited" property (our home), the tax on the life insurance policy, and either cannot work or has to hire full time help for the kids.  But - the surviving partner is still gets to pay off any and all debt... 

Jul 14, 2008 01:38 AM