A person whose spouse has died within the tax year and who may file a joint tax return for that year. Additionally, the surviving spouse can file joint returns for the next two years if they remain unmarried and maintain a household as the principal residence for a dependent child.
Stepped Up Basis
[stepd up bay-sis]
What is the definition of Stepped Up Basis?
The adjusted value of an inherited asset, where the basis is increased to the fair market value of the property at the time of the decedent's death. This adjustment often results in a higher basis than the decedent's original purchase price, potentially reducing capital gains taxes if the asset is later sold.
Using Stepped Up Basis in an Example
If an individual inherits a house that was purchased by a decedent for $100,000, but at the time of the decedent's death the house is valued at $300,000, the heir's basis in the house would be stepped up to $300,000. If the heir later sells the house for $350,000, the capital gains tax would apply only to the $50,000 gain over the stepped up basis, rather than the $250,000 gain over the decedent's original purchase price.
Using Stepped Up Basis in a sentence
During the estate planning meeting, the attorney explained how the stepped up basis for the inherited properties would significantly reduce the capital gains tax for the beneficiaries.
Related Terms
Swap
A financial contract in which two parties agree to exchange streams of payments over a specified period, based on different indices such as interest rates, foreign exchange rates, or equity indices, applied to a notional amount. Swaps typically do not involve the exchange of principal.
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