Ask an Advisor: Do I Receive a Full Step-Up in Basis or Just the $250k Exemption When My Spouse Dies?
WhatWhen a spouse dies, the surviving spouse may be eligible for a full step-up in basis on inherited assets, but only if the total value of the assets is below the exemption threshold. This exemption is currently set at $250,000, but it can be adjusted over time. The full step-up in basis can provide significant tax savings for the surviving spouse.
WhyThe full step-up in basis is beneficial for the surviving spouse because it eliminates any capital gains tax liability on the inherited assets. This is particularly important for assets that have appreciated significantly in value over time. By eliminating the tax liability, the surviving spouse can avoid paying a substantial amount of taxes on the sale of the inherited assets.
SignalThe IRS provides guidance on the rules governing the full step-up in basis, including the exemption threshold and the requirements for eligibility. The IRS Publication 559, 'Survivors, Executors, and Administrators,' provides detailed information on the tax implications of spousal inheritance. Understanding these rules is crucial for the surviving spouse to maximize tax savings.
TargetThe surviving spouse should consult with a tax advisor or financial planner to determine the best course of action for their specific situation. The advisor can help the spouse navigate the tax implications of the inheritance and ensure that they take advantage of the full step-up in basis, if eligible. This may involve reviewing the estate plan and making adjustments as needed.
RiskIf the surviving spouse fails to take advantage of the full step-up in basis, they may be subject to capital gains tax on the sale of the inherited assets. This can result in a significant tax liability, which can be avoided by following the proper procedures and seeking professional advice.