For inherited assets - the basis is so-called stepped up basis equals to the fair market value at the time the decedent passed away.
Fair Market Value is defined as:
"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate."
That is according to Regulation §20.2031-1.
In laymen terms - fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.
If the property was not sold - the FMV is determined by appraisal.
itself is NOT taxable.
However the GAIN realized from the sale of inherited property is taxable.
That means - if the property is sold shortly after - there would not be an taxable gain
However if the property value appreciated after it was inherited - the difference would be your taxable gain.
The gain is calculated as (selling price) MINUS (basis)
If the property was not sold when the decedent passed away - the FMV is determined by historical appraisal.
Generally the appraiser uses comparable sales
of similar assets in the same area and about the same time.
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