|
|
|
'Stepped-up basis' for inherited real estate explained |
|
|
Wednesday, December 29, 2004
Inman News
DEAR BOB: Recently you had a fascinating letter about a person who inherited a house. You said the heir received a new "stepped-up basis" to the market value on the date of the decedent's death (or valuation date used by the deceased's estate).. Then you commented if the heir sells the inherited property immediately there would be no capital gains tax to pay.. As I am in a similar situation, expecting to inherit several pieces of property after my terminally ill mother passes on, how soon must I sell that inherited property to avoid paying capital gains tax? - Fred R..
DEAR FRED: I was amazed at the tremendous response of letters and e-mails to that item seeking more information.. If you have read my articles very long, you know I often say, "It is better to inherit property than to receive it as a gift before death.."
The reason is the heir receives a new "stepped-up basis" of the property market value on the date of death (or alternate valuation used by the deceased's estate). However, if a dying person such as your terminally ill mother deeds real estate as a gift, the donee takes over the donor's usually low adjusted cost basis and does not receive the major benefits of a new stepped-up basis on the date of death.
To finally get to your question, there is no need for you to hurry to sell inherited real estate. That is because you will have a new stepped-up basis for those properties.. You will owe capital gains tax only on the increased net sales price above your stepped-up basis..
For example, suppose when your mother passes on, the property she leaves to you is worth $300,000. But her adjusted cost basis was only $75,000.. If she deeded it to you before her death, your basis would be only $75,000.. For some unexplained reason, many dying property owners insist on deeding property to their heirs before death.. This is a costly mistake for the heirs.
Continuing our example, your "stepped-up basis" for the inherited property will be $300,000.. But by the time you decide to sell that property, suppose you net $350,000 after selling expenses. Therefore, you will have only a $50,000 taxable capital gain.. For more details, please consult your tax adviser.
| |
|
|
|
|
|
|
|
|
|
The materials on this World Wide Web site are provided for informational purposes only, do not constitute legal advice of Berger & Harwell, PA or any of its attorneys, and are not guaranteed to be correct, complete, or up-to-date. This World Wide Web site is not intended to create an attorney-client relationship between you and Berger & Harwell, PA or any of its attorneys, and you should not act or rely on any information in this World Wide Web site without seeking the advice of an attorney of your choice. We would be pleased to communicate with you by e-mail. However, if you communicate with us through this World Wide Web site or otherwise in connection with a matter for which we do not already represent you, your communication may not be treated as privileged or confidential. The hiring of a lawyer is an important decision that should not be based solely upon advertisements and or written information about our qualifications and experience. Berger & Harwell, PA has endeavored to comply with all known legal and ethical requirements in compiling this World Wide Web site.
Berger & Harwell, PA or any of its attorneys, do not desire to represent clients based upon their review of any portions of this World Wide Web site that do not comply with legal or ethical requirements. Some of the articles on this World Wide Web site may contain links to other resources on the Internet. Those links are provided as citations and aids to help you identify and locate other Internet resources that may be of interest, and are not intended to state or imply that Berger & Harwell, PA or any of its attorneys, sponsors, is affiliated or associated with, or is legally authorized to use any trade name, registered trademark, logo, legal or official seal, or copyrighted symbol that may be reflected in the links. While there are references appearing on this site to some specific matters, you should recognize that EVERY CASE or MATTER IS DIFFERENT, AND SIMILAR RESULTS MAY NOT BE OBTAINED IN YOUR CASE OR MATTER. Berger & Harwell, PA designates its office in Charlotte, North Carolina, USA as its principal office and Hal Berger as attorney responsible for this World Wide Web site. Attorneys are not certified by the North Carolina State Bar Specialization and Education under the legal specialization provisions of the Rules Regulating the North Carolina Bar.
Circular 230 Disclosure : To ensure compliance with requirements imposed by the IRS, any tax advice contained in this communication including any attachments was not intended or written to be used, and cannot be used, for the purpose of avoiding tax related penalties or promoting, marketing or recommending to another party any tax related matter addressed herein.
The following language is required pursuant to Rule 7.2, Alabama Rules of Professional Conduct. No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.
|
Berger Harwell
5950 Fairview Road, Suite 808
Charlotte, North Carolina 28210
Telephone: 704-553-7614
|
|
|
