Does step up basis apply to real estate?

The Internal Revenue Code states that a step-up applies for real property “acquired by bequest, devise, inheritance, or by the decedent’s estate from the decedent.” In plain English, that means the new owner of the property is eligible for the step-up whether the deceased property owner had a will or not.

What is the basis of inherited real estate?

The basis of property inherited from a decedent is generally one of the following: The fair market value (FMV) of the property on the date of the decedent’s death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).

What’s the stepped up basis for inherited property?

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.

What should be the cost basis of inherited property?

The general idea of uniform basis is that the cost basis of inherited property should equal the value used for estate tax purposes. The new cost basis after death is usually referred to as the “stepped-up” basis, although the new basis can be lower than the original cost.

What kind of assets get a step up in basis?

Non-retirement assets such as a brokerage account, inherited home, antiques/art/collectables, or other real estate, will generally be eligible receive a step-up in cost basis. Retirement accounts and IRAs do not receive a stepped up basis.

How is the basis of a life estate determined?

It is that fair market value that determines the basis of the property in the hands of the recipient of the property. That’s fairly simple to understand when the decedent owns the entire property interest at death. However, that’s not the case with property that is held under a life estate/remainder arrangement.