By: Martin M. Shenkman, CPA, MBA, JD
In 2010 if the executor of an estate elects not to have the estate tax rules apply then carryover basis rules apply. Conceptually these rules require heirs, as a condition of avoiding any estate tax, to receive property with the same tax basis that their decedent had (e.g., what the decedent paid for a particular stock 30 years earlier). The carryover basis system will only apply for 2010 decedents and can be avoided if the executor opts instead to apply the estate tax system as enacted by TRA. The carryover basis rules are not a true carryover basis in that the basis is the lesser of the carryover basis of each asset or its fair market value at the date of death, and further modified by several adjustments, the most of which are that $1.3 million of appreciation can be eliminated for assets passing to any beneficiaries and an additional $3 million of appreciation can be eliminated on transfers to a spouse.
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