In short
A step-up in basis gives property inherited from a decedent a tax basis equal to its fair market value at the date of death (or the alternate valuation date), so appreciation during the decedent's life is never taxed as income.
Key takeaways
- Inherited property is treated as held for more than one year.
- Gifted property gets a carryover basis instead, so lifetime gifts of appreciated assets pass the built-in gain to the recipient.
- With a high estate tax exemption, holding appreciated assets until death is often better than gifting them.
Where it's tested
TCP: Estate & Gift Tax Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A client's total estate is well below the $15 million exemption. The client asks whether to gift highly appreciated stock to children now or hold it until death. From a pure tax standpoint, which is generally better and why?