Ask Terry Questions Step-up basis

Step-up basis

By Terry Savage on August 16, 2018 | Wild Card

Terry we have multiple properties and it is my understanding that upon our passing our children can inherit the property as well as get the step-up basis on the properties as well. My question is if either my spouse or myself pass is the remaining spouse eligible for the step-up on all our properties as well? We reside in California which is where our properties are located as well.

Terry Says

The “step-up” in basis allows investments to be revalued as of their price on the date of death of the owner. The person who inherits the property or stocks gets a new “cost basis” as of the date of death. So, for example, if you purchased Microsoft stock many years ago at a very low cost, and held it until your death, your heirs would have a new cost basis as of the date of your death. But if you sold it one week before you died, you would have to pay capital gains taxes on all the gain!

When property is held jointly, and one person dies, the survivor has two costs bases for the property — his/her own cost at the time of purchase, and the valuation as of the date of death. Then when the survivor dies (without having sold the property) the heirs get the value of the total property as of the date of death of the last owner.

This may be complicated by the fact that it is an income-producing property and depreciation may have been taken along the way. Since your situation is so complex, I’d recommend consulting a CPA or Enrolled Agent in your state, along with an estate-planning attorney in your state to make sure you get it exactly right. Remember, you won’t be around to fix any mistakes by the time they are noticed!



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