Income Tax Basis & Estate Planning

Posted by Mitch Troester on Jun 18, 2024 9:30:00 AM
Mitch Troester

Income tax basis is the base figure you use when determining a gain or loss when property is sold for income tax purposes. Your basis is usually the purchase price. Just keep in mind that there may be some adjustment made to the basis, such as certain expenses associated with the purchase. If the sale price is higher than the price you bought the property for, you have a gain. On the other hand, if the sale price is lower than the price you bought the property for, you have a loss.

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What is the income tax basis for property you receive by gift?

When receiving a gift, you usually take the basis in the property that the person who gave you the property (known as the ‘donor’) had. This action is known as a ‘carryover’ or ‘transferred’ basis. In some circumstances, the carried over-basis is increased by gift tax paid.

What is the income tax basis for property you inherit?

When inheriting property, you generally receive an initial basis in property equal to the property’s Fair Market Value (FMV). The FMV is determined on the date of death or sometimes, on an alternate valuation date six months after death. Oftentimes, this new value is referred to as a ‘stepped-up basis,’ since basis is usually stepped to FMV, but keep in mind that basis can be ‘stepped down’ to FMV as well.

How does generation skipping transfer tax affect basis?

Generation-skipping transfer (GST) tax refers to the tax that applies to gifts made to family members who are two or more generations younger than the donor. It was essentially made to prevent donors from avoiding estate taxes by skipping children in favor of grandchildren.

When you make a gift, the carried-over basis is increased—but not above FMV—by any gift tax paid that is attributable to appreciation in value of the gift. If the gift is also subject to GST tax, the carried over-basis is then increased—but not above FMV—by any GST tax paid that is attributable to appreciation in value of the gift. If the property is in trust, special rules can also apply at the death of the individual.

Should you make gifts now or transfer assets at death?

This is a personal decision and should not be made solely on the potential tax considerations of the gift. Making a gift now could mean you get to see the recipient use and enjoy the gift. Gifting via your final wishes could mean you are remembered in different ways.

Your Busey Wealth Management Advisor is a great resource for this topic, and they would be happy to discuss the specifics of your situation and make a recommendation. In fact, no matter your life stage, the Busey Wealth Management team can provide tailored solutions designed to fit your unique needs. For more details on our comprehensive services, visit


This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

Investment products and services through Busey Wealth Management are:
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Topics: Wealth, Estate Planning

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