Step up in basis
You may get a break with inherited investments
due to a feature of the tax law known as
step up in basis.
A step up in basis for inherited assets means that you don’t need
to use the original owner’s basis to calculate yours. Instead, your
basis is stepped up to the
fair market value (FMV)
at the time the estate of the owner is valued.
If the previous owner held the asset for a
long time, the step up can provide a sizable tax break. For example,
if the deceased bought a stock years ago when it was selling for
a dollar a share, and you inherit it when its market value is $50
a share, you could sell it right away and record no capital gains
at all. In contrast, if you had to use the basis of the deceased,
you would owe
capital gains taxes
on
profits
of $49 per share, a big difference. |
