Property Inheritance
Stepped-up basis is an incredible benefit to people who inherit property. Not only do they receive the property itself, the basis or cost value of the property becomes the fair market value at the time of the decedent's death. This avoids recognizing the gain between the decedent's cost and what it is worth when it is inherited. If a person had purchased a home for $100,000 and 20-years later when they died, it was worth $500,000, there would be a potential gain in the property of $400,000. However, because of a tax provision called step-up tax basis, the person inheriting the property will have a basis of the fair market value at the time of death. The recipient could sell the property for $500,000 and have no taxable gain on the sale. A formal appraisal is the most reliable and defensible estimate of fair market value at the time of the decedent's death. There will be a fee of several hundred dollars for the appraisal. Another alternative is to...