What is stepped up value?
June 6, 2003
Subject: stepped-up value
From: Doug
Date: Wed, 21 May 2003
A client of mine has asked me about stepped up value. What exactly does this pertain to? He lost his wife last year and is getting ready to sell his home and an adjoining piece of development property. (From a real estate broker.)
Doug
Answer
Date: 2 Jun 2003
Hello Doug,
You should tell your client to see a CPA and an attorney. There may be tax and legal requirements to be attended to relating to the death of his spouse.
"Stepped up basis" refers to a basis adjustment that happens at death according to the rules explained at Internal Revenue Code ยง 1014. Generally, the tax basis or "cost" used to determine gain or loss of inherited property is adjusted to the fair market value on the date of death or the alternate valuation date. (The alternative valuation date usually doesn't apply for spousal transfers.) Although assumed to be a "step up" or increase for inflation, the basis can also be "stepped down", such as for a used television or personal computer. The holding period is also adjusted to "more than one year", so a gain or loss will automatically be long-term.
Different rules may apply, depending on whether the property was held as community property, joint tenants, or separate property. A competent CPA will be able to tell your client the difference.
Good luck!
Mike Gray
We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.
Home Real Estate Taxletter Introducing Our Firm Articles FAQ Need Help? Other Resources
Connect on LinkedIn
Our Blog
© 2024