Simple question on step up basis

Apr 12, 2014 4 Replies

If a decedent bought a stock for $1000 several years ago and that stock is worth $5000 on the date of death and the estate sells in for $5500 a couple of months later, what gain is the estate taxed on, $4500 or $500? An estate with a simple will with considerable assets that stipulates all assets be sold and the proceeds be distributed to the heirs.



Just for curiosity, what would the heir's basis have been if the stock in the above example was to be distributed to the heirs?



I am an inexprienced executor of a very recently deceased close relative's estate and will be using an as yet unselected CPA to do all the tax returns but I would like to know in advance the tax treatment of capital gains.



Thanks.


It should be $500 of long term capital gain.

Should be the same answer.

But what if they use the alternative valuation date?

AVD can be used only if it is applied to all property, and if it results in lower estate tax.

The AVD is the earlier of i) the date of sale of that property, or ii) six months after date of death.

If property is sold between the date of death and the alternate valuation date, the sale price is the value and the basis or the property.

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