Nj.com’s recent article entitled “Will there be a step-up in basis for this inheritance?” explains that the basis of property inherited from a decedent is generally the fair market value of the property on the date of the person’s death. This is known as a step-up in basis.
A step-up in basis is readjusting the value of an appreciated asset for tax purposes, when it’s inherited. The higher market value of the asset at the time of inheritance is considered for tax purposes.
When an asset (like a house) is transferred to a beneficiary, its value is typically more than what it was when the original owner purchased it.
The asset gets a step-up in basis, so the beneficiary’s capital gains tax is reduced or eliminated. A step-up in basis is applied to the cost basis of property transferred at death.
Tax basis is the dollar amount of a taxpayer’s investment in a certain asset or property. It is typically calculated for tax purposes, like calculating depreciation, amortization and other property dispositions.
In some instances, the fair market value at the time of death may be less than the decedent’s tax basis which could cause a basis step-down.
Stock in S-Corporations get a step-up in basis (or down) when inherited just real estate.
However, assets, such as IRAs or annuities, don’t get the step-up because those types of assets are considered income in respect of the decedent.
One of the main goals of our law practice is to help families like your plan for safe, problem free, and successful transfer of assets to the next generation. Call our office today to schedule a time for us to review your estate plan and identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: nj.com (May 10, 2021) “Will there be a step-up in basis for this inheritance?”