For example, if Uncle George leaves you a share of stock in XYZ, and the stock was selling for $250 per share at the time of George's death, that share is treated if you had purchased it for $250 whenever you eventually sell the stock.
George's actual cost of the stock is totally disregarded for all future purposes. If value has decreased, a step down in basis occurs.
Joint Tenancy Property gets HALF a Step Up in Basis If you and George had purchased that share of stock together, when it cost $50, your cost basis for your ½ share was $25, and George's cost basis for his ½ was $25. George dies and leaves you his ½ share. Only the portion inherited receives the step up in basis.
You now have your old ½ with a cost basis of $25, and George's ½ with a new basis of $125 (its value on the date of his death). Your total basis is $150. If you sell it right away for $250, your taxable profit is $100.
Community Property gets a "FULL Step Up in Basis" A special rule applies to Community Property. Regardless of which spouse dies first, the entire 100% of Community Property is revalued at the date of death of the first to die.
In our example, if you are married to George, and the stock is Community Property, the survivor's basis is $250 at the death of the first spouse, regardless of who first bought that stock.
For more information about Community Property.
Return to FLP Article
Return to Question Index
Return to Tax Directory
Return to Real Estate Directory
Return to Home Page