What Is The Stepped-Up Basis Rule In Estate Planning?

In this guide, you will learn the following:

• What the stepped-up basis rule is, and why it is important.
• The assets that are eligible for a stepped-up basis adjustment in South Carolina.
• How the stepped-up basis affects capital gains taxes.

What Is The Stepped-Up Basis Rule, And Why Is It Important?

A stepped-up basis means that when a person dies, owning property or other assets like investments, the basis or value of their property is stepped up from the value at the time of purchase to the value at the time of the deceased person’s death.

For example, when you purchase real estate, it’s usually at a lower price if you hold it for years and then pass away. The value at death is much more than the value when you purchased it.

The one who receives that property as a beneficiary gets to use the value at death rather than the purchase price, which will result in much lower capital gains taxes.

Which Assets Are Eligible For A Stepped-Up Basis Adjustment In South Carolina?

Some of the assets that are eligible for a stepped-up basis include:

• Real estate
• Stocks
• Bonds
• Mutual accounts
• Liquid assets
• Gold
• Silver

Any investment assets that you buy can get a stepped-up basis at death.

What Records Should I Keep To Prove The Stepped-Up Basis Value?

You should always keep your initial purchase records when you purchase the asset. Also, you should keep proof of improvements in real property if you buy a house and spend $20,000 on an extra room or other improvements. Those things help step up the basis at death. You should also keep property tax records and broker statements for investments.

What Happens If The Property Value Decreases After Inheritance?

Although the concept behind the stepped-up basis value is to increase the value of the asset, in some cases, the asset in question may lose value after inheritance. In either case, you must take the value of the property after death, whether it increases or decreases.

How Does The Stepped-Up Basis Affect Capital Gains Taxes?

The stepped-up basis is often preferred because it affects capital gains taxes. You pay capital gains tax on the difference between the value when you sell an asset and the basis or the value at which you took the item.

Without a stepped-up basis, for instance, if the deceased person bought a piece of property for $100,000, and when he died, it was worth $200,000, and the beneficiary sold it for $500,000, then his capital gains would be $300,000 rather than $400,000, which would save the beneficiary taxes.

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