How does EGTRRA affect the “Step Up in Basis Rule”?
Until December 31, 2009, the IRS provided a “gift” of a “step-up-in-basis” rule. The “Step Up” rule applied when a beneficiary received property from the estate of a decedent which “stepped up” the basis, thereby eliminating any potential capital gains. For example, a father purchases a house in 1980 for $100,000. At the time of the father’s death in 2009, the house was valued at $800,000. The beneficiary who inherited the house sold it for that amount in 2009. Is the $700,000 of appreciation a taxable capital gain to the seller – the beneficiary of the property? Under the previous “Step Up” rule, the answer was no. The basis (or cost) of the seller-beneficiary was “stepped up” to fair market value at the time of the decedent’s death. Because that value was $800,000, and he sold it for $800,000, there was no taxable gain. (in fact, the seller-beneficiary could have sold the property for as much as $1,050,000 without incurring a taxable capital gain if it was his primary residence becau
