What is involved in a step-up in basis?

A step-up in basis is a term used in inheritance law in the state of Washington. It refers to the process of adjusting the value of an inherited asset for tax purposes. When an individual inherits a property or asset, the basis of the asset or property is typically based on the fair market value of the asset at the time of inheritance which may be higher than the original cost of the asset. This higher value is known as the “stepped-up” basis. The step-up in basis significantly reduces the estate tax liability for the inheritor. When the inheritor sells or disposes of the inherited asset, the gain in value from the original purchase price to the sale price is taxed at the capital gains rate, which has a lower rate than the estate tax rate. To take advantage of a step-up in basis, the inheritor must document the fair market value of the inherited assets at the time of death and provide the documents to the IRS when filing taxes. There are certain items which may not qualify for a step-up in basis, such as jointly held assets. In summary, a step-up in basis is a process in Washington state that enables an individual who has inherited an asset or property to adjust the value of the asset for tax purposes. This adjustment often results in a lower estate tax liability for the inheritor. Documentation must be collected to prove the fair market value in order to take advantage of the step-up in basis.

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