Donald M. Thompson - Wills, Trusts, and Estate Planning


Stepped-Up Basis/Carryover Basis

A person who dies possessing assets that have increased in value never paid capital gains taxes on the increase in value. The person never sole the assets and never realized the gain. All the gain escapes income tax because of something called stepped-up basis. Whoever gets the assets on death takes as their basis (cost) the date of death value of the assets. When they sell the assets they pay again only on the increase in value (if any) since the date of death. For this reason elderly people with appreciated assets often keep them.

When the estate tax is scheduled to expire in 2010 stepped-up basis will also end. The law provides that the estate tax revives in 2011 with the same rates and exemptions that existed in 2000. However, stepped-up basis will not revive. Instead the beneficiary of a decedent's assets will take the decedent's basis. This is called carryover basis. Therefore, when the beneficiary sells the assets all the gain accruing during the decedent's lifetime will be realized and taxable.

When a lifetime gift is made there is carryover basis. The donee takes the donor's basis in the property.

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Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
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