Paying Taxes on your Inheritance, Rules for 2010

I came across this article in CNNMoney.com about the tax consequences on inhertiances. Someone asked what are the tax rules for valuing assets that one party inherits in 2010?

Answer: The absence of the estate tax does not mean you won’t have to pay taxes on an asset you inherit this year, says Mark Luscombe, principal tax analyst at CCH.

Historically, when a party inherited assets like stocks or a home, the tax basis was the fair market value at the time of death (i.e. stepped-up basis).

So, if someone sold a stock that was inherited by a grandmother that died, that person would have to pay capital gains taxes only on any price appreciation since her death.

The same is still true for estates valued below $1.3 million. However, under current law, if if you inherit substantial assets (i.e. small business your dad started decades ago) the decedent’s original tax basis also carries over.

Bottom line, you would owe taxes on the increase in value since your benefactor owned the asset.

An there you have it! For more information on inheritances and its effect on a Southern California divorce, contact an Orange County divorce attorney for more information.