Quick Read – Under IRC §1014, heirs inherit appreciated assets at fair market value at death, erasing embedded gains and saving one family roughly $290,000 in taxes. – Selling $1.3 million in gains during life triggers roughly $320,000 in combined federal and state taxes that…
lding until death eliminates entirely. – Spend traditional IRA and 401(k) funds before touching appreciated brokerage shares, since pre-tax accounts never receive a step-up in basis. – A married couple in their late seventies sitting on $1.6 million in a taxable brokerage account, with a cost basis of just $300,000, faces a quiet but expensive decision every time they think about funding a kitchen remodel, a new car, or a long trip. Selling the appreciated shares feels logical because that is where the money is
The tax code, however, treats those same shares very differently depending on whether they are sold during life or held until death. This is the situation thousands of retirees stumble into without realizing the cost. On forums like Bogleheads and r/personalfinance, you can find near-identical posts from adult children asking whether mom and dad should sell down the old Exxon, GE, or index fund position to pay for assisted living.
The intuitive answer (sell what you have, preserve the IRA) is usually backwards. The numbers behind the decision – Ages: 78, married filing jointly – Taxable brokerage value: $1.6 million – Cost basis: $300,000 – Embedded long-term gain: $1.3 million – Core question: sell to spend, or hold for heirs? Why IRC §1014 is the whole ballgame The single rule that dominates this decision is the step-up in basis under IRC §1014.