As it gets closer and closer to the end of 2010, experts are beginning to wonder if Congress will make any changes to the estate tax or not. As you probably already know, there is no estate tax for people who pass away this year. Many had expected that Congress would impose a retroactive tax, but with only a few months left in 2010 it is unclear if legislators will tackle the estate tax before the end of the year. However, according to Boston.com that does not mean that large estates get a "free pass" this year.
Things might even be more complicated. That is because a "carryover basis" rule is in effect this year. In previous years, people inheriting property enjoyed a "step up" in basis. That is, the basis of the property they inherited was generally the value of the property when the previous owner died. In 2010 however, people inheriting property also inherit the decedent's tax basis. This means that if you are inheriting property this year, you have to hope the decedent kept very detailed records.
The executor administering the estate can, however, increase the basis of the assets by $1.3M plus any expiring loss carryforwards and the amount by which any asset is worth less than its original cost. The practical implication of this $1.3M is that any estate with untaxed appreciation of up to $1.3M will escape tax free. However, the executor is responsible for designating those assets that will receive the $1.3M. If he or she doesn't pick the assets you inherited, you could find yourself owing taxes upon the sale of the inherited property. However, the good news is that the gains will be taxed at capital gains tax rates.
