The Step Up In Basis At Death of Inherited Property Acquired In 2010

Step Up In Basis At Death Tax Basis of Inherited Property
As a general rule, the tax basis for property that is inherited from someone who dies before 2010 or after 2010 is generally “stepped up” to the fair market value of the property on the date of the decedents death; thus the step up in basis at death valuation. This is also generally the rule if the decedent died in 2010, but there is an exception if the executor filed Form 8939.

What is Form 8939?
Form 8939 is an information return used by the executor (defined below) of a decedent who died in 2010:

      1. To make the Section 1022 Election.
      2. To report information about property acquired from a decedent; and
      3. To allocate Basis Increase to certain property acquired from a decedent.

Section 1022 Election for Step Up In Basis At Death

The executor of an estate of a decedent who died in 2010 can elect to apply modified carryover basis treatment to property acquired from the decedent under section 301(c) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA).

If the election is made, the estate will not be subject to federal estate tax and does not need to file a Form 706 even if the value of the estate is $5,000,000 or more. As a result, section 1014 generally does not apply to determine the recipient’s basis in property acquired from the decedent. Instead, section 1022 applies to determine the recipient’s basis in most (but not all) property acquired from the decedent.

This election is referred to as the Section 1022 Election

Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010
Under the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010, the executors of estates of individuals dying in 2010 were allowed to opt out of estate tax entirely (no estate tax at all applied even if the gross estate exceeded the $5 million exemption) provided an election was made on From 8939 to apply modified carryover basis rules under which the heirs generally received a stepped-up basis only for the first $1.3 million in assets, plus an additional $3 million for property passing to a surviving spouse.

The deadline for executors to make the modified carryover basis election was by January 17, 2012 on Form 8939.

If the executor of a 2010 estate did not elect on Form 8939 to apply the modified carryover basis rules, the regular stepped-up basis rules apply.

For more information regarding the Step Up In Basis At Death Basis of Inherited Property acquired in 2010, visit the IRS for Form 8939 instructions.

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