[WSBARP] Stepped up basis

Tue Sep 17 12:40:40 PDT 2024

The IRS rules for basis adjustment will depend on whether assets are included in the decedent’s estate for estate tax purposes (even if the estate is so small that there are no estate taxes). Generally if an asset is included in the gross estate, it receives a basis adjustment, if not, it does not.

What is included in the estate is addressed in the Regulations:

26 CFR § 20.2040-1 - Joint interests.
§ 20.2040-1 Joint interests.
(a) In general. A decedent's gross estate includes under section 2040 the value of property held jointly at the time of the decedent's death by the decedent and another person<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=5b6e6898a41e8926772a727414713269&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or persons<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=5b6e6898a41e8926772a727414713269&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> with right of survivorship<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=cb99ab6fb2448b436dfce5dbf56a467c&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1>, as follows:
(1) To the extent that the property was acquired by the decedent and the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> by gift, devise, bequest, or inheritance, the decedent's fractional share of the property is included.
(2) In all other cases, the entire value of the property is included except such part of the entire value as is attributable to the amount of the consideration in money or money's worth furnished by the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners. See § 20.2043-1<https://www.law.cornell.edu/cfr/text/26/20.2043-1> with respect to adequacy of consideration. Such part of the entire value is that portion of the entire value of the property at the decedent's death (or at the alternate valuation date<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=93f8c815fcecab106aa5029ca638939b&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> described in section 2032 which the consideration in money or money's worth furnished by the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> bears to the total cost of acquisition and capital additions. In determining the consideration furnished by the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners, there is taken into account<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=c3b57a31fc226d7b84e26175afe251f2&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> only that portion of such consideration which is shown not to be attributable to money or other property acquired by the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> from the decedent for less than a full and adequate consideration in money or money's worth.
The entire value of jointly held property is included in a decedent's gross estate unless the executor<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=81afc5f66947a71c56a5decb678db11f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> submits facts sufficient to show that property was not acquired entirely with consideration furnished by the decedent, or was acquired by the decedent and the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> by gift, bequest, devise, or inheritance.
(b) Meaning of “property held jointly”. Section 2040 specifically covers property held jointly by the decedent and any other person<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=5b6e6898a41e8926772a727414713269&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> (or persons), property held by the decedent and spouse as tenants by the entirety, and a deposit of money, or a bond<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=7dfdff208336864b99fbbead2a4a73fa&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or other instrument, in the name of the decedent and any other person<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=5b6e6898a41e8926772a727414713269&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> and payable to either or the survivor. The section applies to all classes of property, whether real or personal, and regardless of when the joint interests were created. Furthermore, it makes no difference that the survivor takes the entire interest in the property by right of survivorship<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=cb99ab6fb2448b436dfce5dbf56a467c&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> and that no interest therein forms a part of the decedent's estate for purposes of administration. The section has no application to property held by the decedent and any other person<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=5b6e6898a41e8926772a727414713269&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> (or persons) as tenants in common.
(c) Examples. The application of this section may be explained in the following examples<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=84ca440e9c0236c7d3ee1a79845983c5&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> in each of which it is assumed that the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> or owners<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> survived the decedent:
(1) If the decedent furnished the entire purchase price of the jointly held property, the value of the entire property is included in his gross estate;
(2) If the decedent furnished a part only of the purchase price, only a corresponding portion of the value of the property is so included;
(3) If the decedent furnished no part of the purchase price, no part of the value of the property is so included;
(4) If the decedent, before the acquisition of the property by himself and the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1>, gave the latter a sum of money or other property which thereafter became the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1>'s entire contribution to the purchase price, then the value of the entire property is so included, notwithstanding the fact that the other property may have appreciated in value due to market conditions between the time of the gift and the time of the acquisition of the jointly held property;
(5) If the decedent, before the acquisition of the property by himself and the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1>, transferred to the latter for less than an adequate and full consideration in money or money's worth other income-producing property, the income from which belonged to and became the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1>'s entire contribution to the purchase price, then the value of the jointly held property less that portion attributable to the income which the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> did furnish is included in the decedent's gross estate;
(6) If the property originally belonged to the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1> and the decedent purchased his interest from the other joint owner<https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=85307a11a6f904ecc097fcc4cd8a417f&term_occur=999&term_src=Title:26:Chapter:I:Subchapter:B:Part:20:Subjgrp:5:20.2040-1>, only that portion of the value of the property attributable to the consideration paid by the decedent is included;
(7) If the decedent and his spouse acquired the property by will or gift as tenants by the entirety, one-half of the value of the property is included in the decedent's gross estate; and
(8) If the decedent and his two brothers acquired the property by will or gift as joint tenants, one-third of the value of the property is so included.

The rules and some examples.

Heather

Heather S. de Vrieze
Attorney-at-Law
[cid:image001.jpg at 01DB08FE.CC37B580]
3909 California Avenue SW
Seattle, WA 98116-3705
(206)938-5500
heatherd at westseattlelaw.com<mailto:heatherd at westseattlelaw.com>
www.westseattlelaw.com<http://www.westseattlelaw.com/>

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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Eric Nelsen
Sent: Tuesday, September 17, 2024 12:11 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Stepped up basis

Heather, doesn’t JTWROS mandate equal ownership, as one of the “four unities”? So that adding Woman to title, even as an EP tool, would necessitate an inter vivos gift of 50% of equity, leaving Man with only 50% ownership at time of death. Or does the IRS treat it differently?

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com<mailto:eric at sayrelawoffices.com>

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Heather de Vrieze
Sent: Tuesday, September 17, 2024 11:48 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: Re: [WSBARP] Stepped up basis

The portion of the property that would receive a basis adjustment is directly related to the portion owned by the decedent.

If in your example the Man had purchased the property and added the Woman to title as JTWROS as an estate planning tool, then 100% of the property would be included in the estate of the Man who died (for estate tax purposes) and would receive a basis adjustment.

If the property were purchased jointly and they had contributed to it equally, 50% would receive a basis adjustment.

From IRS pub 551
Property Held by Surviving Tenant
The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety.
Example.

John and Jim owned, as joint tenants with right of survivorship, business property purchased for $30,000. John furnished two-thirds of the purchase price and Jim furnished one-third. Depreciation deductions allowed before John's death were $12,000. Under local law, each had a half interest in the income from the property. At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includible in John's estate. Jim’s basis in the property at the date of John's death is figured as follows:
Interest Jim bought with his own funds—1/3 of $30,000 cost
$10,000

Interest Jim received on John's death—2/3 of $60,000 FMV
40,000
$50,000
Minus: ½ of $12,000 depreciation before John's death
6,000
Jim's basis at the date of John's death
$44,000
If Jim hadn't contributed any part of the purchase price, Jim’s basis at the date of John's death would be $54,000. This is figured by subtracting from the $60,000 FMV the $6,000 depreciation allocated to Jim's half interest before the date of death.
If under local law Jim had no interest in the income from the property and contributed no part of the purchase price, Jim’s basis at John's death would be $60,000, the FMV of the property.

Heather

Heather S. de Vrieze
Attorney-at-Law
[cid:image001.jpg at 01DB08FE.CC37B580]
3909 California Avenue SW
Seattle, WA 98116-3705
(206)938-5500
heatherd at westseattlelaw.com<mailto:heatherd at westseattlelaw.com>
www.westseattlelaw.com<http://www.westseattlelaw.com/>

Click here to connect with de Vrieze | Carney on Facebook:   [FB Logo] <https://www.facebook.com/DeVriezeCarney>

CONFIDENTIAL & PRIVILEGED. This e-mail message may contain legally privileged and/or confidential information.  If you have received this e-mail in error, please notify the sender immediately and delete all copies of this e-mail message and any attachment.

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Eric Nelsen
Sent: Tuesday, September 17, 2024 10:10 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: Re: [WSBARP] Stepped up basis

Please post responses to list!

My guess based on logic (“logic” = a way of doing things wrong, but with confidence): There is a step-up in basis only as to the decedent’s interest. By definition, JTWROS interests are equal, so the basis on his 50% interest is stepped up, but her 50% is not. I have no IRS regulation or statutory cite to back this up.

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com<mailto:eric at sayrelawoffices.com>

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Douglas Scott
Sent: Tuesday, September 17, 2024 9:51 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: [WSBARP] Stepped up basis

Unmarried (non-marital union) couple owned real estate as joint tenants with the right of survivorship.  Man dies and the woman gets the property.  Is there a stepped up basis for the woman?

DOUGLAS W. SCOTT
Rainier Legal Advocates|LLC

465 Rainier Blvd. N., Suite C
Issaquah, Washington 98027
425.392.8550 (tel)
425.392.2829 (fax)

www.rainieradvocates.com<http://www.rainieradvocates.com/>

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