INHERITED ASSETS - IRS tax forms

1 INHERITED ASSETSS tepped-Up Basis?IntroductionWhat do you need to know about INHERITED ASSETS basis to answer your 1040 clients year did the decedent die?How did the decedent own and transfer property?2 OverviewEstate basis- assumed from decedent- Generally FMV at date of deathBeneficiary may receive the property distribution with significant time passed- Still FMV at date of deathProperty representing IRD- No FMV3 Track asset to Right ReturnDecedent s- 1040- 1041 Surviving spouse s- 1040- 1041 Beneficiary s 10404 When the Client Needs to Know the Basis of INHERITED Property?SoldTrade or businessInvestment propertyPersonal asset5 General Rules Type of Basis Adjustments Step-up basisNo step-up basisModified carryover basis6 Definition of Basis of INHERITED PropertyOwnership of propertyType of propertyTime of deathAllocation of transfer basis7 Ownership of the OrchardWith or without willJoint spouseA/B trustJoint other than spousePODTODG rantor trust8My Tax Season: Client s QuestionInherited the following ASSETS .

2 - Boat- Land- Backhoe/equipment- House- Rental property- Annuity- Mutual fund- Bank account9 Eligible ASSETS for Basis AdjustmentHas to be owned by the decedent at the time of deathJoint property w/spouseJoint property w/non-spouseWillQualified revocable trustPOD/TOD10 Ineligible ASSETS for Basis Adjustment IRD - income in respect of a decedent - Examples:IRAsPensionAnnuity Gifts before deathIrrevocable trust of decedent112010 Old LawFor deaths in 2010 onlyNo estate taxBasis= modified carryover basis- > of adjusted basis or FMV12 Modified Carryover BasisBasis is lesser of decedent adjusted basis or FMVB asis increase:- $ mil - non- $3 mil - spouse13 Modified Carryover Basis basis increase modifications:- Capital loss carryovers- Net operating loss carryovers- Passive losses142010 New Law2010 to 2012 same as before- FMV at date of death- Exclusion of $5 millionCan elect modified carryover basis- form 893915 When Was DOD?

3 <2010>2010=2010>201216 Federal Estate Tax RatesYearHighest Estate & Gift Tax RateAmt. Exempt fromEstate Tax200945%$ million20100%Unlimited201035%$5 million201135%$5 million201235%$5 million17 Election General Rules<$ million<$ + $3 million w/ ss>$5 millionLosses18 Basis Adjustment Entity OwnershipBasis adjustment for property held by:Estate & trust usual wayPartnership election- - - S corporation stock only19 GiftingDefinitionAnnual limitsLifetime gifting20 What Happens if Client Dies?Most clients do not need to file form 706 Tell the representative/spouse to do a balance sheet- Cash- Mutual funds- Farm (appraisal)- Business (appraisal)- Installment sale21 SummaryAsset _____How owned EligibilityYear of deathAllocation of basis- - - - 22 Thank youDon t forget to stop by the NATP booth in the EXPO Hall for a handout related to this sessio