Blog

What is a step-up basis and how does it work?

On Behalf of | Dec 30, 2016 | Estate Valuation |

Although probate disputes oftentimes involve quarrels between family members, many times litigation can result because a family gets challenged by the state or federal taxing authority. In these sorts of cases, estate valuation is often a very important issue since the value of the estate ultimately determines whether taxes are owed, and if so how much tax is owed.

In this respect, it is important for Saint Paul, Minnesota, families to know that they may have the right to claim a “step-up basis” on the value of the property that they are slated to inherit. Generally speaking, a step-up basis entitles the person inheriting the property to use the “purchase” value of the property as the starting value.

The purchase price might not matter much to someone until he or she goes to sell his or her property. Upon the sale of property, however, income tax will be figured by subtracting the sale price from the established purchase price and then applying a set percentage amount of tax.

For purposes of capital gains tax, the step-up basis is often a huge advantage since the person who died likely obtained the property at a much lower price. The step-up effectively wipes out a lot of capital gain on appreciation that otherwise would be considered fully taxable when the person inheriting the property wants to dispose of it.

People should be aware, however, that not all property qualifies for a step-up basis and that claiming a step-up can at times involve a complicated legal question or even full blown litigation with a taxing authority. In these sorts of cases, it is often to one’s advantage to seek out the advice and experience of a seasoned Minnesota estate litigation attorney.

Source: investopedia, “Step-Up Basis,” Accessed Dec. 26, 2016

Archives