When someone passes away, anything they own can be passed down to heirs of their choosing. Their real estate, stocks, or other investments can all be included as part of an inheritance. While it is wonderful to leave assets behind for others, beneficiaries are sometimes left with a significant tax burden as a result.
The “step-up in basis” rule aims to help heirs so that they are not punished for being left with assets and property when a loved one passes away. It can make a big difference in estate planning, especially when families own homes, farms, or other valuable assets. To learn more about how the step-up in basis rule might apply to your situation, speak with a qualified Lombard, IL estate planning attorney.
What is “Basis” in Estate Planning?
To understand the step-up in basis rule, you first need to know what “basis” means. The basis is the original cost of a property or asset, including any improvements that have been made since it was purchased. For example, if you bought a house for $100,000 and later spent $50,000 on renovations, your basis in that house is $150,000. If you sell the house, you will owe taxes on the profit above the basis. If the house later sells for $300,000, the profit – or “capital gain” – is calculated based on the value you put into the house ($100,000 to buy it + $50,000 to renovate it = $150,000). The capital gain would be $150,000, and that is the amount subject to taxes.