The Tax Relief
Unemployment Insurance Reauthorization and Job Creation Act of 2010 reinstated
the estate tax and stepped-up basis rules and repealed the modified carryover
basis rules for the estates of decedents dying in 2010. In this Emerging Issues
Analysis, Diane L. Mutolo discusses the return of the estate tax, the
stepped-up basis and modified carryover basis rules, and the special election
under the Act to not have the estate tax apply in 2010. She writes:
Stepped-Up Basis Rules.
As a result of the repeal of the modified carryover basis rules under IRC Section 1022, the "stepped-up basis" or
fair-market- value-on-date-of-death rules under IRC Section 1014 will apply to decedents dying in 2010
unless a special election, discussed further below, is made.
Under IRC Section 1014(a)(1),
the basis of property in the hands of the person acquiring the property from a
decedent or to whom the property passed from a decedent is the fair market
value of the property at the date of the decedent's death. In addition, under
IRC Section 1014(a)(2), if an alternate valuation is elected under either IRC Section 2032 or IRC Section 811(j), the basis of the property acquired from
the decedent is determined as of the alternate valuation date. As explained in How to Save Time & Taxes Preparing Fiduciary Income Tax
Returns, "[a]n alternate evaluation date election means that if
the property acquired from the decedent is disposed of within six months of the
decedent's death, its basis is its fair market value on the date of
disposition. If the property is held for at least six months after the
decedent's date of death, its basis is its fair market value on the date six
months after the decedent's date of death." Under IRC Section 1014(a)(3),
an election can be made with respect to farm or business property for the basis
of such property to be its special use value. Furthermore, under IRC Section
1014(a)(4), to the extent of the applicability of the exclusion from the gross
estate for land subject to a qualified conservation easement, the basis for the
property is the basis in the hands of decedent.
IRC Section 1014(b)
identifies the categories of property that will be considered to have been
acquired from or to have passed from the decedent. The categories, as described
in How to Save Time & Taxes Preparing Fiduciary Income Tax Returns,
are the following:
"(1) Property passing by will or through local intestacy laws from
the decedent to his estate regardless of the decedent's date of death.
(2) Property transferred by the decedent to a revocable trust with
income payable to himself or to whomever he directed as long as he lived; or
(for post-1951 decedents) transfers to any trust if the decedent retained a
power at all times prior to his death to control enjoyment of the property
through a power to alter, amend or terminate the trust.
(3) Property passing for less than full and adequate consideration by
decedent's exercise in his will of a general power of appointment. ...
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