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Chad Oberg
Chad Oberg, Certified Public Accountant (CPA)
Category: Tax
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Experience:  10 + years of accounting and tax experience, financial statements and business planning
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My dad just died and left me his estate which basically consists

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My dad just died and left me his estate which basically consists of a house and nothing else. Before he died, he left two differnet legal instruments regarding his estate. He left a will leaving the house. Before he drafted his will he also drafted a Life Estate Deed -- A Warranty Deed to Child Reserving Life Estate to Parent. This deed has never been filed or recorded with the City Register.

Now that my father has died, I am about to petition for probate my father's will. Because the estate is just a house, I could also just file the deed instead of petitioning the will for probate.

Here is my question: If I petition for probate, The cost basis for the house gets "stepped up" for capital gains purposes.

If I instead record the deed--the Life Estate deed's first paragraph reads "FOR VALUABLE CONSIDERATION OF TEN DOLLARS and other good and valuable consideration, grantor ... grants... etc. etc... .
Is my costbasis for the house 10 $? Or does it get stepped up with his death??????



Property Acquired from a Decedent

The basis of any property acquired from a decedent on or before January 1, 2010, is its fair market value on the date of the decedent's death or on the alternative valuation date. This "stepped-up" basis rule applies to property acquired by bequest, devise or inheritance. It also applies to property required to be included in the decedent's gross estate for federal estate tax purposes even though it was the subject of a lifetime transfer, unless the transferee sold or otherwise disposed of the property acquired directly from the decedent without passing through the estate, qualifies for a "stepped-up" basis (Code Sec. 1014; Reg. Section 1.1014-1 thru 1.1014-8.


Please keep in mind that you do not pay a capital gains tax when the transfer occurs. You only would adjust the basis to fair market value. If you sell the house, then a gain or loss would occur.





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