By David Houck
Qualifying Broker
Atomic Realty

We are often asked, “I have lost my spouse or inherited the family home recently, or several years ago, I am thinking of selling the home in the future, what are the tax consequences of doing so.”

The following is a basic primer of a “stepped up basis” – we are not tax advisors, always check with your tax professional before making any decisions that may affect your personal tax situation.

The IRS “stepped up” basis is designed to reduce the capital gains tax for heirs on inherited assets, including a home. Under IRC § 1014(a), the “stepped up basis” applies to an “asset” (such as a home)  a person (the beneficiary) receives from a giver (the benefactor) after the benefactor has passed. Section 1014 will generally give a step up in basis as to that which was inherited. The tax code allows for the raising of the cost basis of the asset to the higher value, reducing the taxes owed if the asset is sold later.

What Is a Stepped Up Basis? A Stepped up basis refers to the adjustment in the value of an inherited asset to its fair market value at the time of the deceased’s death. The step-up in basis provision applies to financial assets like stocks, bonds, and mutual funds as well as real estate and other tangible property.

Is the “stepped up basis” something you should consider? If you have inherited a home, recently or even distantly in the past, talk with your tax professional they may suggest having a Broker’s Opinion of Value (BOV) or a historical appraisal done. The BOV will estimate the value of the home at the time of the deceased’s death. When you go to sell the home you may be taxed on the difference between the value at the time of death and the value when you sell, rather than the difference between the original purchase price and sales price.

How soon after my spouse’s or parent’s (The Benefactor) death should you determine the stepped up basis on your inherited home? We think it is to your benefit to have a Broker’ Opinion of Value (BOV) or an appraisal relatively soon after the Benefactors death as the data will be most accurate. However, we frequently do BOVs for families where the benefactor has passed years in the past. Generally, we do this at no charge.

Atomic Realty recommends either A Broker’s Opinion of Value supplied by an experienced Qualifying Real Estate Broker or a historical appraisal from an appraiser. A qualifying real estate broker will generally have greater experience than an associate broker. Ask your tax advisor what they will accept.

David Houck is the Qualifying Broker for Atomic Realty, with 40 years experience, a BS in math and physics and a doctorate in law. For more details on these issues and free selling and buying tips see AtomicRealty.net.