What is the 6 month rule for step-up basis?
Asked by: Taya Funk | Last update: August 9, 2025Score: 4.4/5 (44 votes)
For inheritances, the basis is the fair market value of the asset at the time of the donor's death (or six months afterward, if the executor elects the alternative valuation date). This is the stepped-up basis).
What is the six month rule for step-up in basis?
If the property is not disposed of within six months of the decedent's death, the executor may elect to use the property's fair market value six months after the date of death but only if such an election results in a decrease in the value of the gross estate.
What are the IRS rules on stepped-up basis?
Stepped-up basis is a provision in tax law that applies to the taxation of capital gains at death. The provision allows assets to be revalued when they are inherited, resulting in preferential tax treatment to the tune of billions of dollars in forgone tax revenues every year.
What is the 6 month date of death valuation?
What is the alternate valuation date? If you elect alternate valuation, the assets are generally valued as of six months after the date of death. However, if an asset is sold, exchanged, distributed to a beneficiary, or otherwise disposed of within six months of death, it is valued as of the date it is disposed of.
What is the stepped-up basis loophole for capital gains?
A stepped-up basis is a tax provision that allows heirs to reduce their capital gains taxes. When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner's death.
What is Step-Up in Basis? Ultimate TAX Cheat Code!
What assets do not qualify for a step-up in basis?
Examples of Assets That Do NOT Step-Up in Basis
401(k), 403(b), 457 employer-sponsored retirement plans and pensions. Real estate that was gifted prior to inheritance. Tax-deferred annuities.
How to avoid paying capital gains tax on inherited property?
Inheriting property in California comes with financial opportunities and responsibilities. By leveraging the stepped-up basis, selling strategically, or using tax-saving tools like the principal residence exclusion or a 1031 exchange, you can minimize or avoid capital gains taxes.
Do assets owned by a trust get a step-up basis at death?
Well, everything. If the assets in a trust are included in the grantor's gross estate at death, then the assets will get a basis step up. If the trust assets aren't included in the grantor's gross estate at death, then the assets won't get a basis step up (remember – no shot, no lollipop).
What is the 6 month rule for inherited stock?
Most of the time, you calculate the cost basis for inherited stock by determining the fair market value of the stock on the date that the person in question died. Sometimes, however, the person's estate may choose what's known as the alternate valuation date, which is six months after the date of death.
Do I need an appraisal for stepped-up basis?
To accurately determine the stepped-up basis of inherited property, a professional appraisal is necessary. Here's why: Accurate Fair Market Value: An appraisal provides a precise estimation of the property's fair market value at the time of the decedent's death.
Does the IRS know when you inherit money?
Typically, no. Most of the time, the inheritance is going to be paid to you with a regular check, not a money order, not a cashier's check. It's going to be paid to you with a regular check drawn on the bank account of the state or trust. It might come to you on a wire transfer, and wire transfers don't qualify.
What is the step up basis for 2024?
The total value of the estate, including the stepped-up value of assets, is still subject to estate taxes if it exceeds the estate tax exemption threshold. As of 2024, the exemption is $13.61 million per individual. Estates exceeding this threshold may face significant taxes, currently taxed 40%.
What is the trust fund loophole for capital gains tax?
The trust fund loophole refers to the “stepped-up basis rule” in U.S. tax law. The rule is a tax exemption that lets you use a trust to transfer appreciated assets to the trust's beneficiaries without paying the capital gains tax. Your “basis” in an asset is the price you paid for the asset.
How much is capital gains tax on inherited property?
In California, beneficiaries inheriting assets, whether monetary or other types, are not subject to any state-specific inheritance tax. Furthermore, such inherited amounts are not considered taxable income under California's tax regulations.
What is the double step up basis rule?
What Is the Double Step-Up in Basis? When a person dies, the individual inheriting an asset gets a new tax basis in the asset, equal to its fair market value as of the date of death. For a married couple, there may be a second step-up in the tax basis that occurs when the second spouse dies.
Can I give my daughter $50,000 tax-free?
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
What happens to the estate tax in 2026?
If the current law is unchanged, as of Jan 1, 2026 the current lifetime estate and gift tax exemption will be cut approximately in half.
How much can you inherit without paying federal taxes?
While state laws differ for inheritance taxes, an inheritance must exceed a certain threshold to be considered taxable. For federal estate taxes as of 2024, if the total estate is under $13.61 million for an individual or $27.22 million for a married couple, there's no need to worry about estate taxes.
How to avoid paying capital gains tax on inherited property trust?
Assets in a revocable living trust get a step-up in basis at the grantor's death just like if they were owned directly by the decedent. The step-up in basis can eliminate capital gains tax on appreciated assets as heirs can sell those assets with little to no capital gains tax since the basis is adjusted.
What is the capital gains tax rate in 2024?
Capital gains tax rates
Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%. For taxable years beginning in 2024, the tax rate on most net capital gain is no higher than 15% for most individuals.
Does a house in irrevocable trust get stepped-up basis?
Last spring, the IRS issued Revenue Ruling 2023-2 to clarify that assets held in an irrevocable grantor trust do not receive a step-up in basis at the grantor's death. This may not have been a surprising revenue ruling for many practitioners.
Is it better to inherit a house or buy for $1?
If she “sells” it to you for $1.00, it is possible that the IRS will consider it a “gift” and charge her gift tax on the value of the house. Even if she does not get hit with that, you will be hit with a massive Capital Gains Tax hit when you sell, since your basis will be $1. Better is to inherit it.
How long do you have to sell a house after your spouse dies?
This means that, generally speaking, a widow or widower who sells their home within two years of their spouse's death may not need to pay capital gains tax on the sale of their home.
What are the disadvantages of inheriting a house?
Inherited properties can come with financial responsibilities such as existing mortgages, unpaid property taxes, maintenance costs, and insurance requirements. Be aware of hidden costs, including emergency repairs, property management fees, and legal expenses.