You can use a CMA (by a real estate agent or broker) for FMV, but the IRS considers the best evidence of FMV to be an appraisal by a certified real estate appraiser.
The general rule for the basis of inherited property is usually the fair market value of the property upon the deceased's date of death. Therefore, the situation of 'Felicity died on October 16, 2022, leaving her estate to her brother, Longinus,' follows this rule.
When you inherit property, you generally receive an initial basis in property equal to the property's FMV. The FMV is established on the date of death or on an alternate evaluation date six months after death. This is often referred to as a "stepped-up" basis since the basis is typically stepped up to FMV.
What is the basis of property received as a gift? To figure out the basis of property received as a gift, you must know three amounts: The donor's adjusted basis just before the donor made the gift. The fair market value (FMV) of the property at the time the donor made the gift.
The basis of property inherited from a decedent is generally one of the following: The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).
To calculate an asset's or security's adjusted basis, you simply take its purchase price and then add or subtract any changes to its initial recorded value. Capital gains tax is paid on the difference between the adjusted basis and the amount the asset or investment was sold for.
The cost-basis figure usually equals the fair market value when the estate owner dies or the assets are transferred. A "step-up" basis means the cost basis is raised to the asset's market value on the original owner's date of death for tax purposes.
5-year rule: If a beneficiary is subject to the 5-year rule, They must empty account by the end of the 5th year following the year of the account holders' death. 2020 does not count when determining the 5 years. No withdrawals are required before the end of that 5th year.
All About the Stepped-Up Basis Loophole. A stepped-up basis is a tax provision that allows heirs to reduce their capital gains taxes. When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner's death.
Inherited properties can come with financial responsibilities such as existing mortgages, unpaid property taxes, maintenance costs, and insurance requirements. Be aware of hidden costs, including emergency repairs, property management fees, and legal expenses.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
According to the IRS, it's the price that property would sell for on the open market. This is the price that would be agreed upon between a willing buyer and a willing seller. Neither would be required to act, and both would have reasonable knowledge of the relevant facts.
There is no federal inheritance tax, but there may be estate taxes at the state or federal level. Estate taxes are entirely separate from state-levied inheritance taxes. In some cases, both types of taxes may apply.
The three laws of inheritance proposed by Mendel include: Law of Dominance. Law of Segregation. Law of Independent Assortment.
This 10-year rule has an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person or a person not more than ten years younger than the employee or IRA account owner.
Inheritances — Your holding period is automatically considered to be more than one year. So, when you sell the inherited stock, it's subject to long-term capital treatment. This applies regardless of the actual holding period.
The IRS expects taxpayers to keep the original documentation for capital assets, such as real estate and investments. It uses these documents, along with third-party records, bank statements and published market data, to verify the cost basis of assets.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Double basis rule: If the fair market value (FMV) of the gifted property on the date of the gift is lower than the donor's adjusted basis, the recipient's basis is the donor's adjusted basis.
Evaluating your property's worth
In order to calculate cost basis, you use either the value of the property on the date of the original owner's death or a date selected by the executor no later than six months after the death.
Your adjusted basis is generally your cost in acquiring your home plus the cost of any capital improvements you made, less casualty loss amounts and other decreases.
Generally, deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes. Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: Abstract fees.