The tax provision isn’t technically a loophole, though it’s been criticized for disproportionately benefiting wealthy families and exacerbating the wealth gap. Supporters contest that the step-up in basis prevents double taxation and encourages Americans to save money and appreciating assets.
Recent efforts to soothe concerns include a proposal from President Biden in 2021 that would tax estates for unrealized capital gains exceeding $1 million per individual, regardless if the heir sells the asset. This proposal would also treat gifts and inheritance of appreciated property as a realization event, so capital gains taxes would be due at the time of transfer.
This proposal was not included in the Ways and Means Committee's 2021 tax package, and the step-up in basis clause is still active.