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?
Property held jointly receives a "step up" to FMV for the portion of the property that belonged to the decedent.
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
Financial AdvisorInheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
RetirementWaiting for a big payload from an aging relative? The chance of cashing in is lower than you think.
Personal FinanceThe amount of a property tax bill is based on the property’s value, the exemptions it qualifies for, its use and the local property tax rate.
TradingLike-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
Financial AdvisorEstate planning is not just for inheritance. High net-worth individuals, who plan properly, can gift their money and save on taxes.
TradingFind out how you can build wealth and reduce your taxes.
Personal FinanceIt's tempting to ditch them. But make a practice of this very specific group of tax papers. It can save headaches and pay off in tax savings.
Personal FinanceInheritance taxes can be tricky. Most people have to deal with them at a very inconvenient time. It's better to learn the laws now so you're ready later.
Personal FinanceUnderstanding your property taxes can protect you from financial shocks.
Personal FinanceAnyone involved in a real transaction can benefit from gaining a basic understanding of the different methods of real estate valuation.