Will I Receive A Step Up In Basis For This Gifted Property?

Will I Receive A Step Up In Basis For This Gifted Property? This flowchart will walk you through discovering the answer.

Receiving gifted property is a major financial event, so understanding tax rules, including possible step-up in basis, is important. Let’s explore what a step-up in basis entails and whether you’ll receive one for gifted property.

Understanding Step-Up in Basis

A step-up in basis means adjusting the tax basis of gifted property to its fair market value at the time of the gift. This means the property’s tax value resets to its current value, not the original purchase price.

Potential Tax Benefits

Receiving a step-up in basis can have significant tax benefits for the recipient of gifted property. When you sell gifted property, capital gains tax is based on the difference between its value at the gift time and the sale price, not the original purchase price.

Example: You receive real estate valued at $300,000 at the time of the gift. If you sell it for $400,000, you pay capital gains tax only on the $100,000 increase since the gift, not from the original price.

Considerations for Gifted Property

While a step-up in basis is common for gifted property, there are some important considerations to keep in mind:

Gift Tax: The donor of the gifted property may be subject to gift tax if the value of the gift exceeds the annual gift tax exclusion amount, currently $15,000 per recipient for 2022.

Basis Carryover: In some cases, gifted property may not receive a step-up in basis. For example, if the donor had purchased the property shortly before gifting it, the recipient’s basis may be the same as the donor’s basis.

Strategic Planning

Understanding the tax implications of gifted property, including a possible step-up in basis, helps you make informed asset decisions. Consider consulting a tax advisor or estate attorney to create a strategy tailored to your financial goals.

In conclusion, receiving gifted property can have significant tax implications, including the possibility of a step-up in basis. Understanding step-up in basis rules for gifted property helps you reduce taxes and maximize asset value.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.