The 2010 Tax Relief Act enacted many beneficial items in regard to estate and gift taxes. One in particular provides a tax saving choice.
The Act allows estates of decedents who died in 2010 to choose between (1) estate tax (based on a $5 million exemption and 35% top rate) and a step-up in basis, or (2) no estate tax and modified carryover basis. Basis is the measure of income tax gain or loss when an asset is sold. With a step-up in basis, pre-death gain is eliminated because the basis the applied to the heir is increased to the date of death value of the asset. Conversely, with a modified carryover basis, an heir gets the decedent’s original basis, plus certain increases, which can be substantial. However, if the decedent had a relatively low basis and significant assets, some pre-death gain may be taxed when the heir sells the property. These concerns factor into the special choice for 2010.
Please direct any questions on which choice works best for you, or on tax planning in general, to our office.
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