BASIS

[TAXMAN]

I seem to have a brain cramp. In Virginia because there is no Estate tax is the Basis of property received by heir the FMV at death or does it go back to to deceased original basis? This was posted in forbes this AM that do to the lasping of the estate tax heirs do not get stepped up values. What say you? thanks

[Kea]

I'm not sure about Virginia, but for US there is no more step up to date of death (or 6 month alternative). There is some kind of overall (whole estate) one million dollar (?) step-up, but I'm not sure the details of how that works. The basis is now the same as it was for the decedent. Won't that be fun to determine! It is my understanding that this method stays for future years even when (if) the estate tax cut-off returns to $1 million for 2011.

[Randall]

I'm not sure about Virginia, but for US there is no more step up to date of death (or 6 month alternative). There is some kind of overall (whole estate) one million dollar (?) step-up, but I'm not sure the details of how that works. The basis is now the same as it was for the decedent. Won't that be fun to determine! It is my understanding that this method stays for future years even when (if) the estate tax cut-off returns to $1 million for 2011.

I thought if everything reverts back in 2011, the step up basis also returns.

[Gail in Virginia]

Virginia repealed estate taxes effective for those who died on or after July 1, 2007. Federal law would, I think, control basis in any event since Virginia, with a few exceptions, tends to follow federal law for tax matters. The IRS has a question and answer page about estates during 2010, and the following information is there:

How do I calculate the basis of a decedent’s assets who died in 2010?

Generally, for the estates of decedents dying after December 31, 2009 and before January 1, 2011, the basis of assets acquired from the decedent is the lesser of the decedent's adjusted basis (carryover basis) or the fair market value of the property on the date of the decedent's death.

However, there are two exceptions to this general rule:

* The executor can allocate up to $1.3 million (increased by unused losses and loss carryovers) ($60,000 in the case of a decedent nonresident not a citizen of the United States, but with no loss or loss carryover increase) to increase the basis of assets; and

* The executor can also allocate an additional amount, up to $3 million, to increase the basis of assets passing to a surviving spouse, either outright or in a Qualified Terminable Interest Property (“QTIP”) trust.

The link for that site is IRS Site

[SaraEA]

I thought if everything reverts back in 2011, the step up basis also returns.

Nope. The law eliminating much of the basis step-up was passed independently of the Bush tax cuts that reduced, then eliminated, then reinstated the estate tax come 2011. Only hope now is that Congress will reconsider if/when they ever get around to reinstating the estate tax.

The longer they dally, the harder it will be to make any changes retroactive for 2010. By law they cannot pass a new tax and make it retroactive. Since there is no estate tax right now, would they be passing a new tax, or is the estate tax just on hiatus and therefore okay to reinstate retroactively? This is a constitutional issue, and the families of some very wealthy people who passed this year have the motivation and funds to take it all the way to the Supreme Court if Congress tries to impose an estate tax for those who died after Jan 1, 2010. The reduced step-up in basis is the only chance they have right now of collecting anything from those estates.