This asks some questions by making some guesses as a starting point for figuring things out. I understand that logic is of limited use in figuring out tax rules.
The 2009 Schedule D instructions says "If you disposed of property that you acquired by inheritance, report the disposition as a long-term gain or loss, regardless of how long you held the property. "
Here are my questions:
- Suppose the case of a house acquired for ,000 in 1980 is passed by the estate after a 2010 death. The value at time of death is ,300,000. Assume that the basis is not stepped up by the executor. I would guess that with the 2010 rules, the basis is ,000 with a 1980 date entered in the line 8 Acquired column.
- formatting linkthat "The executor of the deceased?s estate may increase theincome tax basis of the estate assets by up to .3 million in theaggregate. In addition, if the deceased is married, the executor mayallocate an additional million increase to the basis of assetsthat pass to the surviving spouse." Suppose the executor steps up the house basis to ,000,000. I would guess that the final 1040 pays long term capital gains on the 0,000 increase at the 15% rate, and that the new basis is ,000,000. Right? Or would the CG be paid on the 1041 as some higher rate?
- After the basis is stepped up to ,000,000 the inheritor sells the house for ,300,000. Capital gains tax is paid on the 0,000 and ?INHERITED? is entered in column (b) of line 8 (long term gain).