Receiving inherited property often comes with a tax advantage: receiving a step-up in basis. Whether you are receiving property from a spouse or family friend, you may be eligible to minimize future taxes by taking a step-up in basis. Read on to see if your inherited property qualifies:
Did you inherit property from your spouse?
If the inherited property is from your spouse and you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), then both halves of the property receive a step-up in basis as long as at least half is included in the decedent’s gross estate (full step-up in basis to FMV). If you don’t live in a community property, skip to “Is the property an IRA, 401(k), pension, annuity, or irrevocable trust?” question.
Did you or your spouse gift the property to the decedent within one year before their death?
If you answered “yes,” then your original basis is carried over, and you will not receive a step-up. If not, move on to the next question.
Is the property an IRA, 401(k), pension, annuity, or irrevocable trust?
If you answered “yes,” then you will not receive a step-up in basis. If not, you will likely be eligible for either a half or full step-up in basis.
Receiving a step-up in basis can potentially save you thousands of dollars in taxes. Check out this flowchart to learn more.
If you would like to schedule a call to talk about the best tax strategies for your inherited property, please give us a call at 303-440-2906 or click here to schedule a time to speak with us.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail firstname.lastname@example.org.
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