Selling inherited property

When you acquire property from someone who has died, section 1014 generally determines your basis. The general rule uses the property's fair market value on the date of that person's death. The statute expressly makes this rule subject to its other provisions. Your inherited property therefore does not fall under one unconditional valuation rule.

Your property can qualify as property acquired from a decedent when you receive it by bequest, devise, or inheritance. For deaths after December 31, 1953, the regulation also includes property required to be included in the deceased person's gross estate under the applicable Internal Revenue Code. Those are the principal categories described in the regulation.

Your basis under this framework generally corresponds to the value placed on the property for federal estate tax purposes. The regulation describes that correspondence as the general purpose of section 1014. Its starting point is fair market value at death, with an alternate valuation date available when the executor makes the applicable election.

You cannot apply these inherited property basis rules if you sold, exchanged, or otherwise disposed of the property before the deceased person's death. That limitation applies to the person who acquired the property from the decedent. Both the statute and the regulation expressly preserve this restriction.

Your basis can use a value other than fair market value on the date of death. Section 1014 identifies separate treatments for an election under section 2032, an election under section 2032A, and the exclusion described in section 2031(c). Each treatment has its own statutory condition.

Your property may also be subject to the consistent basis requirement in section 1014(f). For property covered by section 1014(a), this requirement places a ceiling on basis by reference to a federal estate tax value. The requirement has an important limit on which property it covers.

This ceiling applies to your property only if including it in the deceased person's estate increased the estate's federal estate tax liability after allowable credits. The statute expressly restricts the requirement to property meeting that condition. It does not impose this ceiling on every inherited property without regard to the estate's tax liability.

If a final federal estate tax value has been determined for your covered property, your basis cannot exceed that value. If no final value has been determined, a different branch applies when you have been furnished a statement under section 6035(a) identifying the property's value. Your basis then cannot exceed the stated value.

Your property's value can become final through a value reported on an estate tax return under section 6018. For that route, the Secretary must not contest the reported value before the period for assessing estate tax expires. Reporting a value and completing the assessment period without a contest are both parts of this statutory route.

Your property's value can also become final through a value specified by the Secretary that the executor does not timely contest. That route applies in a case outside the return value route. A court determination or a settlement agreement with the Secretary can establish the value as well.

Your treatment under section 1014(f) remains subject to exceptions the Secretary may provide by regulation. The statute expressly authorizes those exceptions. The ceiling therefore retains both its estate tax liability condition and the possibility of regulatory exceptions.

For the portion sheltered by section 2031(c), you retain the decedent's tax basis under section 1014(a). Under section 1014(f), you must also observe a valuation cap for assets governed by subsection (a) when their addition produces extra estate tax after credits, unless a regulatory exception applies.

Once the federal estate tax valuation is final, section 1014(f) bars you from claiming a higher basis for a covered asset. If your covered property has no final value and a statement identifying its value was furnished under section 6035(a), your basis cannot exceed that stated value. You face that restriction only when counting the asset raises estate tax owed after credits, unless the Secretary supplies an exception by regulation.

A special rule can apply if you give appreciated property to someone and later receive it back at that person's death. For deaths after December 31, 1981, section 1014(e) addresses appreciated property given to the deceased person during the one year period ending on the date of death.

For this rule, your gifted property is appreciated property if its fair market value exceeded its adjusted basis on the day you transferred it by gift. The comparison is made on the gift date. The statute's definition concerns that excess in value over adjusted basis.

If the property passes back to you as the donor, or to your spouse, the recipient's basis is the deceased person's adjusted basis immediately before death. Both the gift timing condition and the return to the donor or the donor's spouse are part of the rule. The date of death fair market value rule does not replace that specified basis.

You can also fall within a similar rule when the estate sells the appreciated property. The statute extends similar treatment to a sale by a trust of which the deceased person was the grantor. That treatment applies to the extent you, as the donor, or your spouse are entitled to the sale proceeds.

If you and your spouse hold community property, spouses generally share ownership of assets acquired during marriage. When one spouse dies, your community property generally receives a basis adjustment to fair market value for both halves if half the value of the community property interest is included in the deceased spouse's estate.

Your home's title does not change that stated community property treatment. The approved explanation says it applies regardless of which spouse's name is on the title. The condition concerning inclusion of half the community property interest's value in the deceased spouse's estate still applies.

If what you inherit constitutes a right to receive income in respect of a decedent under section 691, section 1014 does not apply to that property. This is an express statutory exclusion. The general inherited property basis rule therefore does not extend to every right you receive from a deceased person.

If you acquired property from certain people who died in 2010, section 1022 determines basis when the executor made the election described in the regulation. The required election is under section 301(c) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Your inheritance falls within this exception only under the specified death year and election conditions. The regulation expressly identifies this exception alongside its general section 1014 explanation. A death in 2010 alone is not the complete condition described there.