Who pays the capital gains?

I'm not an accountant, but did go through this process in NY State with my father's estate 4 years ago. There may be errors here, and you really should be getting this info from your accountant and lawyer.

Capital gains/losses are basically irrelevant. An estate is taxed on its total value at the time of death. You don't need to know the original purchase price/cost basis/etc of anything, just its current value. The IRS doesn't let the taxes on cap gains slip by, Congress does.

Everything under $2 million (for a 2008 death) gets passed along without tax. Estates with a value >$2M get taxed on the portion over $2M at a graduated rate, I believe.

There is no automatic 6 month valuation. You can choose to use the value of the estate at 6 mos rather than the time of death, but you must do so for all assets (no cherry picking). So instead of the date of death, you'd be using 6 mos later.

In addition to the estate return, that covers the time of death (or 6 mo later), you must also produce an annual return for all income and losses while the estate is being settled. That return would include gains and losses from the time of death to the end of the calendar year and so on.

On a big estate, you are subject to estate taxes. You are not subject to capital gains taxes based on the pre-death basis, big or small. This may seem like surprising loophole. It means that the original basis info is not needed.

As to whether the 6-month alternate valuation applies and is something you want to elect, I would take that up with your accountant.

An estate can have capital gains and losses. They get reflected on the 1041 Schedule D (income tax return for estates and trusts) and are included in computing the estate's total income on the

1041. If losses exceed gains, the excess losses remain with the estate until the final income tax return is filed. I.e., they do not get passed through to the beneficiaries until the final income tax return is filed. As to how much of any net capital gains (long & short) get passed through to the beneficiaries, that will depend upon whether there is a requirement to distribute the gains or they are actually paid to the beneficiaries.

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Alan is correct. The basis is DOD value or, if a sale is more than 6 months later then DOD, the 6 month alternative date if elected for ALL assets. Use 1041 Schedule D even if there is no gain/loss. The gains must be taxed in the Estate and cnnnot be pased through to beneficiaries if the Estate sells the asset. The the asset is distributed the beneficiary takes it at the DOD value and is responsible for the tax when sold.

ed

The Alternate Valuation Date is a factor ONLY if the gross estate value is greater than 2 Million (2008). Such an evaluation would generally only be made if the gross asset total has decreased over that period of time. The "election" is made by the executor of the estate.

Thanks all --- it is very clear. I guess since the estate is taxed on the actual value of the assets at the DoD, the capital gains or losses those assets might represent are irrelevant (and the tax basis for the heirs (or the estate, itself, if some assets have to be liquidated) will simply be *that*value*, as of the DoD).. Appts with account and lawyer are next week, so at least I understand what's going on here.... THANKS!

/Bernie\