The GRAIL Act: Why Congress Is Coming for Your Step-Up in Basis
What if your heirs inherited your company without inheriting its tax basis? For many business owners, the difference between what an asset is worth today and what it cost years ago represents a substantial unrealized gain. Under current federal law, a basis adjustment at death can reduce or eliminate capital gains tax on that appreciation when heirs sell.
That treatment is often called a “step-up in basis.” But it is a tax rule, not a permanent guarantee. Congress can change it. The GRAIL proposal is one reason business owners should understand what the rule does today and model what could happen if it changes.
What does step-up in basis mean for you?
When you inherit an asset, its tax basis is generally adjusted to its fair market value at the owner’s death. Basis is the amount used to calculate taxable gain when an asset is sold. The IRS explains the general rules in Publication 551.
For example, imagine you built a business interest that cost $500,000 and is worth $8 million today. The $7.5 million difference is an unrealized gain. If you hold the interest until death and your heirs receive a basis adjustment to its then-current fair market value, they may be able to sell it with little or no capital gain attributable to your lifetime appreciation.
That does not mean the asset is automatically free of every tax. Estate tax rules are separate, and the result depends on the asset, ownership, valuation and applicable law. But the basis adjustment can significantly affect the capital-gains picture.
This is one version of what is sometimes called “buy, borrow, die”: hold appreciating assets, borrow against them rather than sell, and pass them on with a basis adjustment. The strategy is not available or appropriate for everyone, but it illustrates why the rule matters.
Founders, business owners, and families holding low-basis stock or a closely held company may have especially large gains. Much of that value can be tied up in a business rather than available as cash.
What is the GRAIL proposal, and what could it change?
The GRAIL proposal, described as the “Gain Respecting Assets of Individuals in Life” approach, is part of the policy debate over taxing gains that have accumulated during an owner’s lifetime. The broad idea is to treat some unrealized appreciation as taxable when assets are transferred at death, rather than allowing the entire gain to escape capital-gains tax through a basis adjustment.
The exact scope, exemptions, deferrals and other details depend on the specific legislative language. Do not treat a proposal’s informal name or a summary as a final tax rule. Proposals can change as they move through Congress, and the GRAIL approach has not become law.
Related federal budget proposals have shown what a potential framework could look like. The Biden administration’s FY2024 and FY2025 revenue proposals included taxing certain unrealized gains at death above an exemption. They also contemplated ways to defer payment over time, including in situations where an asset is not readily liquid. The proposals discussed special treatment for certain small businesses and farms, and for retirement accounts.
These budget documents are proposals, not enacted law, and they should not be mistaken for the exact terms of the GRAIL proposal. Their significance is that taxing gains at death has been a live policy debate, with approaches that include exemptions and payment deferrals rather than an immediate cash bill in every case.
Why is Congress looking at this now?
Could federal debt make today’s tax rules a future target? The U.S. gross federal debt has exceeded $36 trillion, and the Treasury’s Debt to the Penny dataset tracks the current total. Debt and persistent deficits increase pressure on future lawmakers to raise revenue or reduce spending.
Limiting the step-up could attract attention because it affects gains that may otherwise never be subject to capital-gains tax. That makes it a potential revenue source when lawmakers are evaluating ways to fund government priorities or address budget gaps.
This does not mean Congress will pass a particular proposal. It does mean business owners should not assume that a tax provision will remain unchanged simply because it has existed for a long time.
Myth vs. reality: does a $15 million estate exemption make the step-up safe?
Myth: “The estate tax exemption is $15 million, so my heirs won’t have a tax problem.”
Reality: Under the One Big Beautiful Bill Act (OBBBA), the federal estate and gift tax basic exclusion amount is set at $15 million per person for 2026, indexed for inflation. You can review the law through the Congressional bill text.
That exemption concerns estate and gift tax. It does not, by itself, guarantee that the current basis adjustment will remain in place or that no separate tax will apply to unrealized gains at death.
And no exemption is truly permanent. Congress can amend tax law, including exemption amounts and the rules for inherited assets. That is a legislative risk, not a prediction that change is certain. The point is to avoid building a succession plan around the assumption that today’s thresholds and rules can never be rewritten.
Would a change affect you if your state has no estate tax?
Could you be affected even if you live in a state with no separate estate tax? Yes. State estate tax rules and federal basis rules are different matters. Some states have their own estate tax systems or do not follow every federal estate tax change. But a change to the federal basis rule could affect federal tax treatment of inherited assets regardless of where you live.
Your state may also have its own income-tax rules, so the full picture depends on your residence, business structure and the assets involved. That is a reason to coordinate state and federal advice, not a reason to assume that moving would remove the risk.
What should you do with your business now?
How can you prepare without making a rushed decision? Start by measuring the exposure. You do not need to predict Congress’s next move to understand what a change could mean for your family.
- Estimate embedded gains. Compare the current value of your business interest or concentrated stock with its tax basis. For a private business, work with qualified valuation and tax professionals.
- Model more than one outcome. Ask your advisors to compare a sale during your lifetime with a transfer at death under current law, then model a scenario where some gains are taxed at death. Keep the assumptions explicit.
- Review possible planning paths. Lifetime gifts, a partial sale, or a sale while current law remains in effect may be worth evaluating. Each can have trade-offs involving control, income needs, valuation, gift tax, capital-gains tax and family goals. Do not make an irreversible move based on a proposal that may never pass.
- Consider liquidity. If a future tax bill arose when most of your wealth was tied up in a business, your heirs might need cash at a difficult time. Life insurance can be considered as one possible liquidity hedge, but suitability and design depend on your circumstances. It does not eliminate tax exposure or guarantee a particular outcome.
- Revisit the plan regularly. Legislative proposals change, and so do business valuations, family needs and tax rules. Put a review on the calendar with your estate-planning attorney, CPA and financial professionals.
Should you change your plan because of the GRAIL Act?
Not based on the name of a proposal alone. Tax proposals have come and gone for years, and political outcomes are uncertain. The GRAIL proposal has not passed, and its eventual terms, if any, could differ from what is discussed today.
But uncertainty is not a reason to ignore your numbers. Your business may be your most valuable asset, yet its value is not the same as cash your heirs can use to pay a tax bill. Understanding the gap between value, basis and available liquidity can make succession decisions more deliberate.
Your next step: ask your advisors to quantify the embedded gain in your business and model the after-tax results under current law and a potential change. We can work together with your professional team to clarify the exposure, identify planning questions and build a strategy that reflects your goals, without making a rushed decision based on legislation that may never become law.