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Practice Areas

  • Estate Planning 

  • Wills  & Trusts

  • Tax Law

  • Trust Law

  • Asset Protection

  • Probate

  • Estate Administration

  • Prenuptial Agreements

  • Mediation Services

Carryover Basis vs. Stepped-up Basis

Income Tax Basis in Property Received


Gain or loss, if any, on the disposition of property is measured by the taxpayer’s amount realized (i.e., gross proceeds received) on the disposition, less the taxpayer’s basis in such property. Basis generally represents a taxpayer’s investment in property with certain adjustments required after acquisition. For example, basis is increased by the cost of capital improvements made to the property and decreased by depreciation deductions taken with respect to the property.


A gift or bequest of appreciated (or loss) property is not an income tax realization event for the transferor. The Code provides special rules for determining a recipient’s basis in assets received by lifetime gift or from a decedent.


Basis in property received by lifetime gift


Property received from a donor of a lifetime gift takes a carryover basis. “Carryover basis” means that the basis in the hands of the donee is the same as it was in the hands of the donor. The basis of property transferred by lifetime gift also is increased, but not above fair market value, by any gift tax paid by the donor. The basis of a lifetime gift, however, generally cannot exceed the property’s fair market value on the date of the gift. If a donor’s basis in property is greater than the fair market value of the property on the date of the gift, then, for purposes of determining loss on a subsequent sale of the property, the donee’s basis is the property’s fair market value on the date of the gift.


Basis in property acquired from a decedent


Property acquired from a decedent’s estate generally takes a stepped-up basis. “Stepped- up basis” means that the basis of property acquired from a decedent’s estate generally is the fair market value on the date of the decedent’s death (or, if the alternate valuation date is elected, the earlier of six months after the decedent’s death or the date the property is sold or distributed by the estate). Providing a fair market value basis eliminates the recognition of income on any appreciation of the property that occurred prior to the decedent’s death and eliminates the tax benefit from any unrealized loss.


In community property states, a surviving spouse’s one-half share of community property held by the decedent and the surviving spouse (under the community property laws of any State,U.S. possession, or foreign country) generally is treated as having passed from the decedent and, thus, is eligible for stepped-up basis. Thus, both the decedent’s one-half share and the surviving spouse’s one-half share are stepped up to fair market value. This rule applies if at least one-half of the whole of the community interest is includible in the decedent’s gross estate.

Robert J. Adler,

Attorney at Law

ADLER & ADLER,PLLC

Wills, Trusts, Estates & Private Client Services

30 years of

EXPERIENCE

Office: 212-843-4059

Estate Attorney, Wills and Trusts

Direct: 646-946-8327

1180 6th Avenue

8th Floor

New York, New York 10036

We also see clients in Westchester (White Plains)  

and Long Island (Garden City). 

Serving New York including (but not limited to): New York City including Manhattan (New York County); Brooklyn (Kings County); Bronx; Queens; Staten Island (Richmond County); Long Island (Nassau County and Suffolk County); Westchester County, Rockland County; Putnam County; Dutchess County; and Northern  New Jersey.

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