1. Heirs receive a basis in inherited property equal to its date-of-death value under the fair market value basis rules, also known as the “step-up and step-down” rules.
2. The fair market value basis rules apply to inherited property that’s includible in the deceased individual’s gross estate, whether or not a federal estate tax return was filed, and those rules also apply to property inherited from foreign persons.
3. If property is gifted during the lifetime, the “step-up” in basis would be lost, meaning the person receiving the gift takes the same basis the donor had in it. – If someone dies owning property that has declined in value, the basis is lowered to the date-of-death value.
– Giving the property away before death won’t preserve the basis, as the recipient must take the date of gift value as his or her basis.
– A good strategy for property that has declined in value is for the owner to sell it before death to enjoy the tax benefits of the loss.
– Executors may be able to make an alternate valuation election in some cases, and “death bed gifts” may be included in the gross estate for tax purposes.
– For tax assistance with estate planning or after receiving an inheritance, contact taxinsights@nksfb.com or Richard Welling at rwelling@nksfb.com.
There’s a Favorable “Stepped-Up Basis” If You Inherit Property
Leave a Reply