Are you the beneficiary of an estate created in 2010? If so, you might want to start thinking about your basis in the assets you inherited.

Here's why.

When the new estate tax became law in December 2010, traditional basis rules were reinstated for 2010 through 2012. Those rules say the value of estate assets is determined at the date of death (or six months later if an election is made). As a beneficiary, that means when you sell inherited assets you can use the more current date-of-death value as your basis, potentially reducing your capital gain.

The new law also established an opt-out from date-of death basis for estates created in 2010. Instead of applying traditional rules, these estates can choose to follow the law previously in effect, which valued estate assets using a "modified carryover basis."

As a beneficiary, your basis in assets inherited under the modified carryover rules starts at either the fair market value at date of death, or the same basis as the person from whom you received the assets, whichever is less. What's the modified part? The basis of certain assets can be increased by no more than a total of $1.3 million ($4.3 million for assets inherited by a spouse).

Estates have until September 2011 to make the election to use the modified carryover basis rules.

The choice affects the estate tax return and your individual income tax return. If you're in this situation, please contact us for help in making the right decision.


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