Pent-up Disallowed Losses Disgorged upon Death

[Corduroy Frog]

Ran into this from someone no doubt smarter than me, and referred to section 469(g)(2) as well as Pub 925.  If I understand this lawyers' language, upon death all the disallowed losses are released, except not to exceed stepped-up basis in the property.

As usual, the only way to get this into my pea-sized brain is to illustrate.

Assume rental property with original basis of $100,000, and disallowed losses built up to $45,000.  The FMV at time of death is $130,000.  If I read this correctly the "step up" is only $30,000, so the amount of losses released can only be $30,000, not $45,000.  I don't know what kind of basis is passed on to the beneficiaries.

Anyone care to chew on this one??

 

[jklcpa]

First several paragraphs in this link explain it well and includes an example:

https://www.journalofaccountancy.com/issues/2017/jul/tax-planning-opportunities-final-tax-return.html

[Corduroy Frog]

Good article that explains it very well.  Thanks, Judy.

[DANRVAN]

On 7/31/2021 at 8:30 PM, Corduroy Frog said:

$30,000, so the amount of losses released can only be $30,000, not $45,000.  I don't know what kind of basis is passed on to the beneficiaries.

The allowable loss is 45,000 - 30,000 = 15,000.

Section 469 does not change the amount of step up in basis.

[schirallicpa]

yep - I remember that from about 100 years ago.