Receiving a gift, bequest or other inheritance carries a unique set of federal income, gift and estate tax rules that must be observed. Knowing what the rules are will help you prepare for any tax consequences that may ensue upon ultimate sale or other disposition.
The recipient of a gift or a bequest pays no gift or estate tax. Those taxes, if they are due, are payable by the donor (the person making the gift) or the estate in the case of a decedent. Generally, no gift tax is due for gifts to any on person that does not exceed $14,000, $28,000 if the gift is given jointly by a husband and wife.
The American Taxpayer Relief Act of 2012 extended major provisions in tax rules governing estate and gift taxes. The act now states that the estate tax dollar amount threshold is $5.25 million, the annual gift tax exclusion amount is $14,000 and the lifetime exclusion is $5.25 million.
For income tax purposes, the property that has been gifted to the donee (recipient) has a basis that is the same as it would have been in the hands of the donor or the last preceding owner by whom it was not acquired by gift. However, the basis for loss is the basis determined or the fair market value of the property at the time of the gift, whichever is lower.
In the case of a gift on which the gift tax is paid, the basis of the property is increased by the amount of gift tax attributable to the net appreciation in value of the gift. The net appreciation for this purpose is the amount by which the fair market value of the gift exceeds the donor’s adjusted basis immediately before the gift.
Generally, the basis of any property, real or personal, acquired from a decedent is its fair market value on the date of the decedent’s death or on the alternative valuation date selected by the estate for estate tax purposes six months after death. Principally, this “stepped-up” basis rule applies to property acquired by bequest, devise or inheritance. Property acquired by the decedent’s estate, as well as property acquired directly from the decedent without passing through the estate, qualifies for a stepped-up basis.
If you have any further questions on this topic or how the rules apply to your specific situation, please do not hesitate to contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
