CFP

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Basis - Basis of Inherited Property (Community and Non-Community Property)

Basis of Inherited Property (Community and Non-Community Property)
The basis for inherited property is generally "stepped up" to the FMV of the property on the date of the decedent's death, and treated as a long-term holding period for the new owner. The executor can elect to utilize the "alternate valuation date (AVD)" after the death, if they wish to do this. The AVD allows the estate to pay taxes on the value of the assets six months after the date of death.


Alternate Valuation Date (AVD) requirements:
  • Total value of the gross estate must decrease by using the AVD.
  • The amount of the estate tax must decrease by using the AVD.
  • Proper AVD election must be made on the estate tax return.

Death Bed Gifts Exemption:
Todd gifts stock to his grandfather with a FMV of $10,000 and an adjusted basis of $3,000. If grandfather dies within one year of the gift and passes the stock back to Todd by way of inheritance, Todd does not get the "step up" to FMV, he has to retain his original basis.

What happens to the basis for jointly held property?
Non-Community Property:
Property held jointly receives a "step up" to FMV for the portion of the property that belonged to the decedent.

Community Property:
Property held jointly receives a "step up" in basis to FMV on both halves at the death of the first spouse.

Sample Questions 1 - 5

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