If you or someone you know has received an inheritance, it is important for you to understand how to manage your basis “step up.” A “step up” in basis is the adjustment of the value of an appreciated asset – for tax purposes – upon inheritance.
Simply put, when an asset is passed on to a beneficiary, the value of that asset at the time it is inherited is generally higher than it was when the original owner acquired the asset. Accordingly, the asset receives a “step up” in basis to equal the value of the asset on the decedent’s date of death. This has the effect of minimizing the beneficiary’s capital gains tax.
Keeping good records and obtaining paperwork from the courts, trustees, and other parties involved will help ensure you are using the step up basis correctly and minimizing the risk of IRS audits.
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