Never Realized Capital Gains

• In Event: Taxing Intergenerational Wealth Transfers

Abstract

Appreciated assets are subject to capital gains tax when sold by their original owner, but many countries waive this tax at inheritance through “stepped-up basis” policies. Using novel data, we show that 20% of the wealth held by Norwegian households consists of potentially-taxable unrealized capital gains, but only small fractions of this are realized each year in taxable transactions. When Norway removed stepped-up basis in 2006, taxable realizations rose significantly, especially among older and highly-appreciated investors. Inherited assets also had lower gain-to-value ratios following the reform. We conclude that step-up policies substantially affect investor behavior and benefit the wealthy.

Author

• Lucy Msall, lucymsall@gmail.com