Toney’s Tax Takeaway
Newsletter–February 25, 2024
In this issue:
- Assets Transferred Before or After Death?
- Why Are Tax Refunds Shrinking?
- What To Do Before Forming an LLC
- Social Security Benefits and Location, Location, Location
Assets Transferred Before or After Death? Are you thinking of transferring ownership of assets to your children or others while you’re still alive? Don’t create a potential tax trap for the recipients of your generosity by ignoring the advantage of the “Step-Up” basis.
A “Step-Up” basis is when the value of an inherited asset may increase to its fair market value (FMV) at the owner’s death. We will use a vacation home as an example, but assets could include stocks, mutual funds, bonds, real estate, and other investment property.
If I purchased a vacation home for $300,000, my “basis” is what I paid (plus any improvements made). Some years later, I sold it for $550,000. Assuming no additional improvements had been made, I would have to pay capital gains tax on the difference between what I bought and sold it for. So, I would pay capital gains tax on $250,000.
Let’s say instead of selling the vacation home, I keep it until I die. My heirs’ basis in the house is not what I purchased it…
