Clients and friends are always asking me financial questions. You might have similar questions so I have decided to share them with you. I will try and post at least 1 per week.

 

What is a stepped-up basis for
property you inherit?

Answer:

When you inherit property, you generally receive an initial basis in property equal to the property’s fair market value (FMV). The FMV is established on the date of death or, sometimes, on an alternate valuation date six months after death. This is often referred to as a “stepped-up basis,” since basis is typically stepped up to FMV. However, basis can also be “stepped down” to FMV.

Example(s): Say your mother leaves you stock worth $1,000 at her death. She purchased the stock for $500. Your basis in the stock is a stepped-up basis of $1,000. If you sold the stock for $1,000, you would have no gain ($1,000 received minus $1,000 basis).Now assume that the stock is worth only $200 at the time of your mother’s death. Your basis in the stock is a stepped-down basis of $200. If you sold the stock for more than $200, you would have gain.

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Basis is not stepped up or down to FMV for certain property transferred to the decedent within one year of death and for income in respect of a decedent (certain income, such as a retirement account, that was not properly includable in taxable income for the year of the decedent’s death or a prior year).

 

As always, you can consult with me to discuss   your current situation. If you have a question, feel free to send it to Jared@artoffinancialplanning.com. Thanks for stopping by and I hope you achieve financial success!