Monday, February 07, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
What is the special rule affecting step up of cost basis in 2010?
Because there was no federal estate tax in 2010, a tax provision that caused property to have its cost basis “stepped up” to the fair market value of the asset on the owner’s date of death did not apply in 2010. Thus, property such as stocks and real estate were inherited at the deceased owner’s cost basis. This has implications for capital gains taxes when the asset is eventually sold.
However, the Tax Relieve Act of 2010, passed in December, allows executors to choose between the pre-existing law (where no federal estate tax existed but also no step-up in cost basis), and the new law which made the estate tax retroactive to January 1, 2010, reinstated the cost basis step up rule, and raised the exemption level to $5 million per person.
Most people will benefit from the new federal estate tax rules because they will not exceed the federal exemption level and will be allowed to step up the cost basis of the decedent’s assets. If unsure, executors of a deceased person’s estate should talk to an estate planning attorney or a CPA to determine which approach makes the most sense for the particular circumstances. |