When is a Stepped-Up Basis Helpful?

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A step-up in basis can help with capital gains taxes.

You own real estate property.

You are trying to decide whether to gift this property to your children now or pass it on when you die.

According to a recent Motley Fool article titled “What is a Step-Up in Basis?,” whether real estate is gifted with warm hands or inherited can make a significant difference on taxes.

A step-up basis will help minimize taxes.
A step-up basis decreases capital gains taxes.

How so?

Real estate typically increases in value over time.

When a property that has “appreciated” in value is sold, it triggers a capital gains tax.

This tax is based on the amount the property increased between its purchase and selling date.

What happens if you wait to pass the property through inheritance?

The property will receive a step-up in basis.

What is a that?

It means the property value will be reassessed to determine its value as of the date the decedent dies.

The inheritor will not owe capital gains taxes up to the date of death value.

What happens if the heir sells the property?

The heir will owe capital gains tax on any increase in the property value between the time of inheritance and the date of sale.

Even so, this is a far smaller tax bill because of the step-up in basis.

Passing the asset through your estate will not remove all tax liability.

You could still trigger a federal or state estate tax depending on the state.

The current federal estate tax exemption threshold is $11.4 million for individuals and $22.8 million for married couples.

What does this mean?

If you have a $25 million estate as a couple, $2.2 million will be taxed.


Minimizing taxes through a step-up in basis can help.

Working with an experienced estate planning attorney will help you create most effective and efficient plan for transferring your assets to the next generation.

Reference: Motley Fool (November 21, 2019) “What is a Step-Up in Basis?”

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