February 19, 2010
Taxation Alerts

2010- A Year Without an Estate Tax and with a Carry-Over Basis?
by Agnieszka K. Adams

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) brought many changes to the estate tax system including a repeal of estate and generation-skipping transfer taxes in 2010.  In addition, the basis rules under IRC § 1014(a) were eliminated and substituted with basis rules under IRC § 1022.

In contrast to the "stepped up" basis rules that have been in effect for decades, under IRC § 1014, IRC § 1022 mandates that "property acquired from a decedent dying after December 31, 2009" is to be treated the same as if acquired by gift.  Consequently, the basis of inherited property generally will be the lesser of "the adjusted basis of the decedent or the fair market value at the date of the decedent's death."           

Fortunately, IRC § 1022 provides some relief in form of basis increase rules under IRC § 1022(b) and (c).  In summary, apart from a few exceptions, most property will qualify for the general increase in basis of $1,300,000 under IRC § 1022(b).  To qualify for the spousal basis increase of $3,000,000 under IRC § 1022(c), the surviving spouse has to receive the property outright or through a QTIP trust (that follows the same rules that existed prior to 1/1/2010). 

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