For families immigrating to the United States, one of the most powerful tax planning strategies is achieving a “step-up in basis.” This strategy involves executing specific transactions before U.S. residency begins to revalue assets, effectively resetting the baseline for calculating future capital gains.
Why the Step-Up in Basis Is a Critical Pre-Immigration Strategy
Handled correctly, this can significantly reduce future U.S. tax liability. Handled poorly, or overlooked entirely, it can result in avoidable taxation that erodes long-term wealth.
How the Step-Up in Basis Works
The U.S. tax system imposes capital gains tax when assets are sold. The amount owed depends on the difference between:
- Purchase Price (Basis): What you originally paid for the asset.
- Sale Price: What you receive when you sell it.
If you immigrate without planning, the U.S. will treat your original purchase price as the basis, even if you bought the asset decades ago at a much lower value.
Example:
- A property purchased in Hong Kong for $1 million decades ago is now worth $5 million.
- Without a step-up, the U.S. would tax the full $4 million gain upon sale.
- Through a pre-immigration basis step-up strategy, the asset’s new baseline for U.S. tax purposes is reset to $5 million, eliminating U.S. tax on the prior appreciation.
Assets Eligible for Step-Up Treatment
Not all assets qualify automatically, and careful planning is essential to maximize the benefit. Common assets reviewed in pre-immigration planning include:
- Real estate holdings abroad
- Closely held business interests
- Investment portfolios, stocks, and bonds
- Family trusts or joint holdings
Because treatment varies depending on ownership and jurisdiction, families should consult experienced advisors to confirm which assets qualify and how best to document fair market value.
Common Mistakes Families Make
Failing to plan properly can leave families with higher-than-necessary tax exposure. Some of the most frequent oversights include:
- Delaying Action Until After Immigration: Once U.S. residency begins, the opportunity to reset basis is largely lost.
- Incomplete Valuations: Without a professional appraisal, taxpayers may lack defensible documentation for their new basis.
- Overlooking Business Interests: Families often focus on real estate or investments while missing opportunities to restructure business ownership.
- Ignoring Trust Structures: Existing foreign trusts may have adverse consequences if not reviewed before residency.
Each of these mistakes can mean substantial tax bills down the road.
Why Timing and Documentation Matter
Timing is crucial. Families who begin planning 12–24 months before their U.S. move have time to:
- Conduct independent appraisals for major assets.
- Restructure ownership to maximize eligibility for step-up treatment.
- Coordinate with foreign advisors to ensure valuations comply with home-country rules.
Equally important is documentation. A fair market valuation report prepared before entry provides evidence to withstand IRS scrutiny, protecting both the strategy and the client.
Harbor Law Firm’s Role in Protecting Wealth
At Harbor Law Firm, we recognize that high-net-worth families often hold diverse, complex portfolios that require nuanced planning. The step-up in basis is rarely straightforward. It involves coordination across asset classes, tax systems, and family structures.
Our boutique approach provides:
- Customized Strategies: Tailored to each family’s unique portfolio.
- Cross-Border Coordination: Collaboration with foreign accountants and attorneys to ensure compliance across jurisdictions.
- Proactive Planning: Ensuring timing, valuation, and structure all align before U.S. residency begins.
Where larger firms may treat step-up planning as routine, Harbor Law Firm sees it as a pivotal opportunity to preserve generational wealth.
Why the Step-Up in Basis Can Save Millions
Consider two families:
- Family A immigrates without planning. Their $10 million foreign investment portfolio, purchased decades ago, is taxed on $8 million of built-in gain when sold.
- Family B works with Harbor Law Firm to document and step up the basis before immigration. Their new U.S. tax basis is reset to $10 million, eliminating tax on prior appreciation.
The difference? Potentially millions in preserved wealth for Family B.
Plan Ahead With a Trusted Advisor
The step-up in basis is one of the most effective—but also most time-sensitive—tools available to new U.S. residents. Missing the window for action can result in unnecessary taxation and lost opportunity.
By working with Harbor Law Firm, families gain a dedicated partner who understands the complexity of cross-border wealth and the importance of timing. Our mission is simple: to ensure international families enter the U.S. tax system with confidence, clarity, and a plan that protects their financial future.