In an article recently published by the AICPA, Using Cost Segregation in Estate Planning, our subject matter expert, Gian Pazzia, CCSP, details the ability to create permanent tax savings after a death occurs through an often overlooked aspect of the step-up in basis tax law.
Our short video explains the mechanics of how this strategy can work for you or your clients that own real estate.
When a client dies, a critical estate planning area for tax professionals involves managing the step up in basis on inherited assets for estate and income tax purposes. The general rule for real estate is that when a property is inherited, any gains built up during the decedent’s life are not recognized. The beneficiary also receives a "step up," which means the property’s tax basis is reset to fair market value on the date of death.
While most tax professionals focus on how the new stepped up value will impact taxes on the decedent’s estate and the beneficiary’s income tax liability, many overlook the opportunity to manage the decedent’s original tax basis for real estate assets that are recorded on their tax deprecation schedule before death. This change to the property’s original basis can be done even after a death occurs, but it must be done before filing the decedent’s final income tax return. » Read the full article and case study