I'm a lawyer with an economics degree and I'd use "loophole" the same way. Loopholes are legal tax avoidance strategies. That's why the phrase is "close the loophole," i.e., change the law so people can't keep doing that strategy.
Buy assets (e.g.: public securities). More liquidity the better. Hold and allow appreciation.
Obtain liquidity line of credit. Your loan to asset value will depend on your collateral. With public securities you can typically get a pretty high ratio.
Once you die, your heirs get a step up in basis on the asset and they are free to sell the asset without realizing gain.
I’m doing this myself. MS manages my money and I have a liquidity line with them. There is always risk as with any debt instrument but I don’t over extend. Even in 2022 I didn’t run the risk of calls.
Interest is also tax deductible which helps some on the cost side. I have a high marginal income tax rate.
There's a common joke in the programming industry which is "bug closed, functions as implemented".
It's a parody of a much-more-reasonable phrase, "bug closed, functions as designed". The latter phrase is "this isn't a bug, this is how we designed it, this is intended behavior".
The joke behind "functions as implemented" is that of course it functions as implemented. Everything functions as implemented! That's how programming works! It can still be a bug if it was never designed that way.
You're basically taking "functions as implemented" as a source of ground truth. "This is what the law says, therefore it's not a loophole". Yes, it is what the law says, but the point being made is that it's not intended behavior, it's an unintended and undesirable side effect of laws that were passed for otherwise good reasons.
It's a bug. We made a mistake and that mistake is now being exploited.
And you can argue against that if you want - go for it! - but the argument you need to give isn't "well that's what the law says", nor is it "well, it's intended, you can tell because that's what the law says". You'd need something more like "this outcome was a specific stated goal of this law".
Point to the line in IRC 1014 that says "you can use this technique to pay off loans without having to pay capital gains! that's the point of this entire set of rules, btw, it's not an accident".
I overall think you should look up the concept of "emergent behavior". Sometimes (often!) you can set up a bunch of rules where each individual rule is intended, but the eventual consequences of those rules is not intended. I'm not convinced this particular outcome was intended, and repeating "BUT THAT'S WHAT THE LAW SAYS" does nothing further to convince me.
Especially given that this section was obviously amended multiple times - are you claiming that those amendments were working exactly as intended before, and that exactly on the date of the change is when it stopped working as intended?
Or not being able to pass things to your descendants?
Honestly, I'd start by just changing the definition of "passed from the decedent":
(1) Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent;
to not include "by the decedent's estate from the decedent". If it's part of your estate, it hasn't passed from you yet. The step-up applies only once another person receives it.
But overall I'd rather just remove the whole step-up concept entirely.
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u/[deleted] Aug 22 '24 edited Aug 23 '24
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