14W // Real Estate & Home Builders Guide // July 2017
Heir can benefit from stepped-up basis
when receiving property via a will
By Ilyce Glink
and Samuel J. Tamkin
Tribune Content Agency
Q
: Your recent article,
“Selling a rental
property without facing
a large tax bite,” all the
information you provided
is good, but you did not
mention what I consider
might be best: Simply rent
the property to the young
couple and let them know
that the property is willed
to them via their will and
living trust.
This has several great
advantages that your
suggestions do not. First,
there are no taxes for the
estate to pay. Second, there
is no tax due to the young
couple when they receive
their inheritance (assuming
the stepped-up value law
remains). Third, the son is
incentivized to maintain
541-667-2000
EQUAL HOUSING
the property just as though
he owned it. Fourth,
the parents continue to
receive income they are
accustomed to and may
depend on.
I have purchased and
sold income properties for
40 years as an investor,
many of them by using a
1031 exchange. I would
never consider actually
selling my son a property
I own, as long as the
stepped-up value IRS code
remains available.
: Thank you for your
comment. Yes, your
idea about how to transfer
property to a child is a
good one. The kids in this
family might like that idea
as well, but when we make
assumptions in our answers
we can’t always go through
all the permutations. We
appreciate your suggestion
A
and are sure some of our
other readers may as well.
One thing you
mentioned was the
stepped-up basis. We
wanted to explain that
concept in a bit more detail.
When you own a
home and own it for some
time, you usually have
purchased it for a price
that is substantially lower
than what it may now be
worth. Under current law,
if you purchased a home
for $50,000 and years later
when you die the property
is worth $1,000,000, then
your heirs will receive the
home at its value at the
time of your death.
Your estate wouldn’t
pay capital gains taxes as
a result of the appreciation
and your heirs would only
pay taxes on a profit over
$1,000,000.
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