THE “STEP-UP IN BASIS” LAW EFFECTIVELY WIPES AWAY ALL CAPITAL GAINS AND DEPRECIATION RECAPTURE TAXES.
Step-Up in Basis
Yes, you do have to die for someone to benefit from this last strategy, but the positive tax consequences are among the highest in the entire tax code. In almost all circumstances, the “cost basis” of your real estate investment property (the price paid, including maintenance and improvement costs) is “stepped up” on the date of your death to its fair market value. As real estate tends to be an appreciating asset, in most cases, the fair market value of the property ends up being much higher than its cost basis. If you sold the property prior to your passing, you would have paid taxes on the difference between the cost basis and the market value. However, the “step-up in basis” law effectively wipes away all capital gains and depreciation recapture taxes that would have been payable if you had sold the property immediately
preceding your death. If your heirs keep your property for any length of time before selling, they could owe some taxes, but only relating back to the value of the property upon your passing. The step-up in basis has been criticized as being only advantageous to the wealthy. As such, this is another tax strategy that certain populists in Washington periodically threaten to limit or eliminate. As with anything tax related, the devil is in the details, and you should always work with tax and investment professionals who are well versed in the relevant rules and regulations. For more information, please contact 1031 Capital Solutions at (800) 445-5908 or visit 1031CapitalSolutions.com.
RICHARD D. GANN, JD Managing Partner 1031 Capital Solutions (800) 445-5908 1031CapitalSolutions.com
Richard (Rick) Gann is an attorney, licensed real-estate broker, and general securities principal specializing in 1031 exchange solutions and he is co-author of the book How to Retire from Being a Landlord.
Disclaimer : This information is for educational purposes only and does not constitute direct investment advice or a direct offer to buy or sell an investment and is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Because investor situations and objectives vary, this information is not intended to indicate suitability for any particular investor. The views of this material are those solely of the author and do not necessarily represent the views of their affiliates. Investing in real estate and 1031 exchange replacement properties may involve significant risks. These risks include, but are not limited to, lack of liquidity, limited transferability, conflicts of interest, loss of entire investment principal, declining market values, tenant vacancies, and real estate fluctuations based upon a number of factors, which may include changes in interest rates, laws, operating expenses, insurance costs and tenant turnover. Investors should also understand all fees associated with a particular investment and how those fees could affect the overall performance of the investment. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). 1031 Capital Solutions is independent of CIS, CAM and CIA.
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