What to do with Inherited Property in 2010?

With the repeal of the Estate Tax and Generation Skipping Transfer Tax in 2010, those who inherit assets from someone who dies in 2010 may be forced to deal with some very difficult income tax basis rule changes. If someone dies and their entire estate is less than $1.3M the inherited assets will receive a "step-up" in basis to the fair market value of the asset as of the decedent's date of death. But, if the person who dies in 2010 owned more than $1.3M in assets, then a tax return must be filed with the decedent's final income tax return which would be due April 15, 2011 or such later date as the IRS might prescribe by regulation not yet issued [see IRC Section 6075(a)].

If an heir sells property in 2010 where the asset is included in an estate of a deceased person with more than $1.3 M in property, that individual will need to wait until he or she receives the information required by Internal Revenue Code Section 6018. So far, the IRS has not even published the necessary tax forms to file this report.

Heirs who inherit property from someone who dies in 2010 in excess of $1.3M would do best to NOT sell that asset in 2010. There is an argument that with the sunset of the current tax laws at the end of this year (Section 901 of the EGTRRA) that the basis of assets sold after 2010 from decedents dying in 2010 will be entitled to a step-up in basis under the resurrected Section 1014 of the Internal Revenue Code. No one can say for sure what Congress might do before the end of the year? Stay tuned.

A Suggestion for Congress

There is a lot of talk these days about "bipartisanship" in Congress. Perhaps Congress needs to find some baby steps for the concept of putting the American taxpayer ahead of politics. Here is a suggestion for our legislators. Since we are waiting on a new Tax bill to straighten out the debacle of the repeal of the Estate Tax and Generation Skipping Transfer Tax, fix the imposition of the new "Modified Carryover Basis" tax regime that became effective on January 1, 2010. These new income tax rules dealing with basis are a nightmare for the heirs of those who have lost loved ones after January 1 of this year. Assuming the new tax bill will take a while to work out, at least spare those who were unlucky enough to die in this calendar year from the headache of trying to figure out all the new modified carryover basis rules. Surely both sides of the aisle can agree that the imposition of these taxes at this time are patently unfair. A simple bill to repeal the modified Carryover basis rules should be a slam dunk to sail through the House and Senate.