Inherited Property Tax Basis
Lesson:
When property is inherited, there is a question as to the basis that the recipient should recognize.
The basis of inherited property is the fair market value of the descendant's property at time of death. This is referred to as the primary valuation date (PVD).
If (and only if) the fair market value subsequently declines, the executor of the estate may use an alternate value date (AVD). The executor can't simply pick any date for when the fair value measurement takes place, however. He must use the earlier of the following: 1) six months after the date of death, or 2) the date of property distribution.
You're a tax accountant, trying to figure out the basis of some inherited property.
You've been provided with the following information:
- Three months after death, the property was worth $403.
- Six months after death, the property was worth $315.
- Distribution of inherited assets took place 5 months after death.
- At the distribution date, the property was worth $385.
- Twelve months after death, the property was worth $371.
- At time of death, the property was worth $344.
Assuming the will's executor is competent, what is the basis of the property?
Answer:
- The inherited property's basis is $344.
Explanation:
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When an item is worth less than (or equal to) the item's fair market value at time of disbursement and six months after the death, just use the item's fair market value at time of death as the basis.