Step-Up Basis Effects on Capital Gains

Recent tax legislation is looking to curtail the loss of capital gains tax revenue resulting from sellers reporting inflated basis on inherited assets upon the sale of said assets.  As was the case prior to the enactment of the new law, beneficiaries inherit assets valued at the fair market value as of the date of the decedent’s date of (referred to as a “step-up in basis”); however, the new law binds the beneficiary to the value as reported by the executor of the estate when the asset is sold, or face a 20% penalty applied to the underpayment.  Further, the legislation requires executors to report to the beneficiaries and the IRS, the value of the specific asset on the estate tax return. The new law applies to all estate returns filed after July 31, 2015, whether taxable or not. The reporting form is expected to be released by the IRS in early 2016.

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