Handling 2010 Carryover Basis Rules

Under the 2010 carryover basis rules, property passing from a decedent may be stepped up by an aggregate of $1.3 million and an additional $3 million for property received by a decedent’s spouse. Executors applying these rules may face several issues:

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    • Basis includes purchase price and the cost of capital improvements, which may be hard to prove. The IRS may assume the cost basis is zero if basis cannot be proven.
    • Executors and trustees must be careful about timing the sale of assets, weighing the impact of capital gains taxes.
    • Although beneficiaries may not like it, executors may want to postpone distributions until the end of the year to ensure the estate has the cash to pay potential estate or capital gains taxes.
    • The IRS has not yet issued the form for step-up in basis, so executors don’t know how much information will be requested.
    • Executors need to be careful not to benefit some heirs more than others when allocating the step up in basis.

See Julius Giarmarco, How to Handle Carryover Basis in 2010, Producersweb.com, Oct. 7, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.