How to Get Stepped Up Basis on Inherited Property
Understanding the concept of stepped-up basis on inherited property is crucial for anyone who has inherited an estate. A stepped-up basis is a significant tax advantage that can potentially save thousands of dollars in capital gains taxes. This article will guide you through the process of how to get stepped up basis on inherited property, ensuring you make the most of this valuable benefit.
What is Stepped-Up Basis?
A stepped-up basis is a tax provision that allows the inheritor of an asset to take a new, higher cost basis in the property. This means that when the inheritor sells the property, the capital gains tax will be calculated based on the difference between the sale price and the new, higher basis, rather than the original cost basis of the property. This can be a substantial tax savings, especially for properties that have appreciated significantly over time.
Eligibility for Stepped-Up Basis
To qualify for a stepped-up basis, the property must meet certain criteria. First, the property must be inherited directly from a deceased person. This includes gifts through a will or intestacy (when there is no will). Second, the property must be valued at fair market value at the time of the decedent’s death. If the property is sold within six months of the decedent’s death, the sale price will be used as the basis for calculating capital gains tax.
How to Get Stepped-Up Basis
1. Document the Inheritance: Ensure that you have proper documentation of the inheritance, such as the death certificate, will, or intestacy documents. This will help you prove that you are eligible for the stepped-up basis.
2. Value the Property: Determine the fair market value of the property at the time of the decedent’s death. This can be done through an appraisal or by consulting with a real estate professional.
3. Report the Inheritance: Report the inherited property on your tax return using Form 8939, which is required if the value of the property exceeds $1.3 million. This form will help you establish the stepped-up basis.
4. Keep Records: Maintain detailed records of the property, including any improvements or expenses incurred since the inheritance. This information will be essential when calculating capital gains tax on the sale of the property.
Conclusion
Understanding how to get stepped-up basis on inherited property can provide significant tax advantages. By following the steps outlined in this article, you can ensure that you take full advantage of this beneficial provision. Always consult with a tax professional or financial advisor for personalized advice and guidance on your specific situation.
