My wife and I have postponed gain from our previous home that we sold in 1994, under the law in effect at that time that allowed the gain to be postponed. We filed Form 2119 with our 1994 tax return. I know that if we sell our current home the basis would be reduced by the amount of the postponed gain.
Suppose we don't sell, our adult children inherit our home after both of us die, and the kids then sell the home. Assuming that stepped-up basis is still in effect, would the kids' basis be the full fair market value on the date that the second one of us died? Or would the kids have to subtract the gain that we postponed on our previous home?
The kids never postponed any gain. My wife and I postponed the gain. The postponed gain reduces our basis. Does it reduce our heirs' basis?
Is the answer different if our estate sells our home and distributes the proceeds to the kids, instead of letting the kids take ownership of the home and sell it?
There are only two homes involved here: the one we sold in
1994, and the new home that we bought in 1994 and still own and live in. There has never been any business use or rental use of either home, so there is no depreciation.Bob Sandler