What is involved in a step-up in basis?
A step-up in basis is a taxation rule that helps people avoid significant tax liabilities when inheriting property, specifically in the state of California. Essentially, a step-up in basis means that the inheritor of a property is treated as if they had purchased it at the current market value, rather than at the original cost of the asset. For the inheritor, this means that they will be able to avoid paying tax on the capital gains of the asset that accrued while it was held by the deceased individual. In other words, the inheritor will be taxed on the assets current worth, without having to pay taxes on the appreciation of the assets that took place while it was owned by the deceased. In California, a step-up in basis is generally applied to all inherited assets. However, there are certain exceptions and restrictions that apply, such as the asset not being used for business purposes, the date the decedent passed and the date the asset was inherited. In order for the step-up in basis to be applied, the inheritor must obtain an inheritance tax assessment from the California Franchise Tax Board. In most cases, this must be done within nine months of the deceased’s passing. This assessment will allow the inheritor to calculate and report the assets basis, while allowing the state to determine any estate tax due. In conclusion, a step-up in basis is a taxation rule that helps people avoid significant tax liabilities when inheriting property in California. The inheritor of a property is treated as if they had purchased it at the current market value, as opposed to the original cost of the asset. In order for the step-up in basis to be applied and any estate tax due to be determined, the inheritor must obtain an inheritance tax assessment from the California Franchise Tax Board.
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