Step up in Basis – McGuire Law Firm https://jmtaxlaw.com Denver Business Attorney Tue, 06 Jan 2015 20:51:00 +0000 en hourly 1 https://wordpress.org/?v=7.0 https://jmtaxlaw.com/wp-content/uploads/2020/09/cropped-favicon-01-32x32.png Step up in Basis – McGuire Law Firm https://jmtaxlaw.com 32 32 Burden of Proof When Stepping up Basis of Jointly Owned Property https://jmtaxlaw.com/burden-of-proof-on-basis-step-up-of-jointly-owned-property/ Tue, 06 Jan 2015 20:51:00 +0000 https://jmtaxlaw.com/?p=2016 Under Section 2040(a) of the Internal Revenue Code, all jointly owned property must be included within a decedent’s estate, except for any portion that can be shown to have originally belonged to the surviving joint tenant, and that was never received or acquired by the surviving joint tenant from the decedent for less than full and adequate consideration.  Section 1014 of the Internal Revenue Code will generally give a surviving joint tenant a step up in basis as to the portion of the jointly held property that was included in the decedent’s estate.  This inclusion of the jointly held property in the decedent’s estate may or may not create any estate tax due, which would or may depend upon the use of the decedent’s unified credit or use of the marital deduction depending upon who else was a joint tenant.  Regardless, the inclusion of the property in the joint tenant’s estate will allow for the step up in basis.  This step up in basis could lead to taxpayers arguing that a larger portion of the jointly held property was included within the deceased joint tenant’s estate.  A taxpayer may be able to accomplish this by failing to show that they had contributed to the property.  Thus, what happens if the surviving joint tenant or tenants fail to or makes no attempt to establish their contribution in regard to the acquisition of the jointly held property?  Can the surviving joint tenant or tenants receive a full step up in basis to the fair market value of the property as of the date of death?  Who has the burden to prove a step up in basis should be allowed and the amount of the step up in basis?

One United States Tax Court case touched on some of the issues or questions above.  In Madden v. Commissioner, 52 T.C 845 (1969) the consideration furnished test was applied when the taxpayer included one half of jointly held stock in his wife’s estate tax return.  Such inclusion was made even though the deceased wife had not paid any consideration for the stock that was included within her estate tax return.  When the taxpayer sold the stock, a stepped up basis was used in computing the gain on the sale of the stock.  The basis was challenged by the IRS and the taxpayer unsuccessfully argued that his wife’s estate had failed to prove the burden that the consideration was not paid by the wife, and thus one half of the stock should receive a step up in basis under IRC Section 1014.  As stated above, this argument was unsuccessful as the court held the taxpayer had the burden to prove, and failed to prove that the jointly held property was required to be included in the decedent’s estate.  See IRC Section 1014(b)(9).  The reasoning of the court was that a taxpayer should not receive a tax advantage by deciding whether or not to include jointly owned property within an estate.  Thus, the “requirement” issue.

Under the current law, the consideration furnished rule will likely not apply to most cases involving property that is jointly owned by spouses, and one half of the property will be included within the estate of the first spouse to pass.  However, the consideration furnished test is likely to apply to non-spousal joint tenancies  and thus Madden can be of relevance.

You can contact The McGuire Law Firm to speak with a Denver estate planning attorney and tax attorney through a free consultation.

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]]> What is a Step Up in Basis? https://jmtaxlaw.com/what-is-a-step-up-in-basis/ Thu, 18 Dec 2014 11:09:26 +0000 https://jmtaxlaw.com/?p=1983 Generally if you receive property through an inheritance and the value of the property was claimed in the decedent’s estate you receive a step up in basis?  So what does this mean?  What is a step up in basis?  Generally, a step up in basis means that you take the property with a basis at the fair market value as of the date of death as opposed to a carryover basis.  This can be beneficial because if or when you sell the asset or property, with a higher basis you should have less of a gain, and thus less tax.  A step up in basis is different than a carry over basis whereby you take the property with  basis that was the adjusted basis in the hands of the donor prior to the gift being made.  Certain assets, such as IRD assets (income in respect of decedent) may not get a step up in basis.

Please remember that the information within this article and video is for informational purposes.  You should always consult your tax attorney or estate planning attorney regarding matters relating to gifting property and transferring property at death, and the tax and estate implications.  You can speak with a Denver tax attorney and estate planning attorney by contacting The McGuire Law Firm.

Denver Estate Planning Attorney Denver Tax AttorneyContact The McGuire Law Firm to schedule your free consultation with a Denver estate planning attorney and tax attorney.

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