What is the Estate Tax Step-Up In Basis?

Aug 09, 2010  /  By: Michelle Hull, Certified Public Accountant  /  Category: Taxes

There’s been quite a bit of buzz about estate taxes lately and if you’re following the story, you’ve probably caught the phrase “step-up in basis” once or twice.

So, what is the step-up in basis? And how does it affect you?

The step-up rule is what protects your heirs from paying capital gains tax on their inheritance. If, for example, your home is worth $200,000 when you pass away and your family decides to sell it for $200,000, your heirs would have to pay capital gains tax on the difference between your basis in the property (i.e.what you paid for the home so many years ago) and the $200,000 value it has now.

But with the step-up, your basis in the home is revalued at $200,000 at your death, so when your heirs sell the house, there’s no capital gains tax on the profit.

Of course, this isn’t the only way that estate taxes will affect your assets and some are not as beneficial. To learn more about planning your estate and minimizing taxes, contact our office today.

There’s been quite a bit of buzz about estate taxes lately and if you’re following the story, you’ve probably caught the phrase “step-up in basis” once or twice.

So, what is the step-up in basis? And how does it affect you?

The step-up rule is what protects your heirs from paying capital gains tax on their inheritance. If, for example, your home is worth $200,000 when you pass away and your family decides to sell it for $200,000, your heirs would have to pay capital gains tax on the difference between your basis in the property (i.e.what you paid for the home so many years ago) and the $200,000 value it has now.

But with the step-up, your basis in the home is revalued at $200,000 at your death, so when your heirs sell the house, there’s no capital gains tax on the profit.

Of course, this isn’t the only way that estate taxes will affect your assets and some are not as beneficial. To learn more about planning your estate and minimizing taxes, contact our office today.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

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