The amount of capital gains tax or capital loss is based on the difference between your adjusted basis and the amount for which you sell the asset. The adjusted basis of an asset is its cost after adjusting it based on IRS rules.
This can be very complicated in estate administration issues when you inherit property and then sell that property. You must accurately calculate your basis in the property so you can determine the amount of capital gains tax to pay.
Generally, when property or other assets are inherited, the cost basis is equal to the fair market value of the property or asset at the time of the decedent's death. There are alternate valuation methods that may be used and an experienced estate planning attorney can calculate which method is most favorable to your situation.
Regardless, the goal is to ensure the holding period is long enough to qualify for long-term capital gain tax rates. The reason being is that under current tax law, long-term capital gains are taxed at a more favorable, lower rate than the normal income tax rate.
Determining tax basis is not only an issue to consider during the administration of an estate. It helps to think through these issues during the estate planning process because there are ways to improve the tax basis for your beneficiaries. Contact an experienced attorney with Stouffer Legal at 443-470-3599 for more information.