How to determine basis in property received from a decedent

IRC 26 U.S. Code Section 1014

Section 1014 of the Internal Revenue Code (IRC) addresses the basis of property acquired from a decedent. This section plays a crucial role in determining how the value of inherited property is evaluated for tax purposes.

Key Provisions

• Step-Up in Basis: Typically, the basis of property inherited from a decedent is adjusted to the fair market value (FMV) as of the date of the decedent's death.

• Application: This provision is applicable to property included in the decedent's gross estate for federal estate tax purposes.

• Limitations: Certain limitations and exceptions may apply, such as basis adjustments for specific types of property or circumstances where the property is sold prior to the settlement of the decedent's estate.

Implications

This step-up in basis can substantially decrease capital gains taxes for heirs when they sell the inherited property, as they are only taxed on the appreciation occurring after the date of death.

Conclusion

Comprehending IRC Section 1014 is essential for estate planning and tax strategy, as it influences how inherited assets are valued and taxed upon sale.