Help with step up basis

[Ann B.]

I recently inherited a couple rental properties from dad which I plan to keep. I need to determine the step up basis. Do I need to hire an appraiser or can a broker (or someone else) help determine the value? Thank you for your time.

[Michael Plaks]

@Don Spafford

This IRS link should answer your estate tax return question:

https://www.irs.gov/businesses/small-businesses-self-employed/deceased-taxpayers-filing-the-estate-income-tax-return-form-1041

As to the step-up basis, it happens at the moment of inheritance, regardless of what happens later. Later you can live in this property yourself, keep it vacant, keep it as a rental, sell it, donate it etc. In all of these cases, you will have the initial step-up basis as your acquisition cost, as if you bought it at this price.

All tax consequences are also the same as if you bought it for its value at the time of inheritance.

Example:

parents bought it years ago for $100k
when Mom passed away, it was worth $300k
you add $50k in upgrades
you then sell it for $375k

your step-up basis is $300k
your adjusted basis at sale is $350k
your taxable capital gain is $25k (minus commissions and other selling costs)