Avoiding Zero Basis for Inherited Assets
Practitioners involved with the administration of trusts and estates of a decedent may be confronted with the issue of dealing with one or more assets of a decedent discovered after the administration is believed to have been concluded. Consideration of timely reporting of those assets for estate tax purposes may be essential to avoiding assignment of a zero basis to such assets.
The recipient of property from a decedent generally takes a basis equal to the fair market value of the property at the time of the decedent’s death (or the alternate valuation date (i.e., six-months after the decedent’s date of death)) pursuant to Section 1014(a) of the Internal Revenue Code of 1986, as amended (the “IRC”). However, under Proposed Regulations issued in 2016 addressing the so-called consistent basis reporting rules, the basis of inherited property may unexpectedly be determined to be zero.
These amounts will continue to increase for inflation each year until December 31, 2025. Under current federal law, the increase in the federal basic exclusion amount is scheduled to automatically sunset on December 31, 2025, from $10,000,000 plus an inflation adjustment, to $5,000,000 plus an inflation adjustment. As such, on January 1, 2026, the exemption amounts are scheduled to be automatically slashed by approximately one-half.
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