Basis Flashcards
What is carry-over basis?
Also called transfer basis. FMV when gift made.
Code § 1015(a)
If FMV at time of gift is lower than gift giver’s basis, recipient takes lower basis.
What is gift recipients basis if gift giver pays gift tax?
Recipient increases his or her basis in the asset by a proportionate amount of the gift tax paid, according to the ratio of the appreciation in the gifted asset immediately before the gift to the total fair market value of the asset immediately before the gift. The donee B’s basis cannot increase above the fair market value of the asset on the date of the gift (see Code § 1015(d)(
What happens to cost basis if GST tax is paid?
If GST tax was paid with respect to A’s generation-skipping transfer of an asset to GC, then after making the basis increase for gift tax paid (if any) under the preceding bullet point, GC increases his or her basis in the asset by a proportionate part of the GST tax paid, using the same ratio of the appreciation in the asset to the total fair market value of the asset immediately before the generation-skipping transfer to GC.
What is step up basis?
For gratuitous asset transfers occurring at death, Code § 1014(a) and (b) state the general rule that an asset “acquired from a decedent” at death or “passing from a decedent” at death receives a new basis, in the hands of the heir, beneficiary, or other recipient, equal to the fair market value of the asset on the date of death (or on the alternate valuation date if an estate tax return is filed and if a section 2032 election is made).
What is a step down basis?
If an asset passes from a decedent at death and if the asset has a fair market value that is less than the decedent’s basis in the asset just before death, Code § 1014(a) will produce a basis “step-down” for that asset and will create a greater capital gains tax exposure for the recipient of the asset than the gains tax exposure that the decedent had before death (i.e., low or zero).
What are the exceptions to step up basis?
The general rule that an asset passing from a decedent at death receives a new basis equal to its fair market value does not apply to an asset that is a right to receive income in respect of a decedent (see Code § 1014(c)) or to annuities (see Code § 1014(b)(9)(A)).
Under a potentially important exception, if an asset passes by gift from person A to person B within a year before B’s death, and if the asset passes back to A, Code § 1014(e) will prevent the asset from receiving a new basis equal to its fair market value on the date of B’s death.
What does new Code section 1041(f) require of beneficiaries receiving inherited assets?
Use the basis reported on the 706.
How is new Code section 1041(f) implemented?
Section 6035 requires the executor who is REQUIRED TO FILE a 706 to provide to each person who receives property a statement identifying basis.
Also, executor must report basis to the IRS on a Form 8971. Failure to file results in a 0 basis until reported.
