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  1. #1
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    Jun 2016
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    Default Step Up in Basis After Inheritance of a Partial Interest in Real Estate

    My question involves estate proceedings in the state of:

    My mother died 10 years ago and left my brother and I her half of the land she owned with my father and gave my father life estate. At the time of her death the land was worth 4000 an acre and now my dad has passed and the value of the land is 10,000 an acre. How do you figure stepped up value? Would half of it be at 4000 and half at 10,000 or because my dad had life estate would it be the 10,000 when he died?

  2. #2
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    Default Re: Step Up Value

    Quote Quoting dmiz
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    My question involves estate proceedings in the state of:

    My mother died 10 years ago and left my brother and I her half of the land she owned with my father and gave my father life estate. At the time of her death the land was worth 4000 an acre and now my dad has passed and the value of the land is 10,000 an acre. How do you figure stepped up value? Would half of it be at 4000 and half at 10,000 or because my dad had life estate would it be the 10,000 when he died?
    I have seen it argued both ways. In my opinion it should have a full stepped up value as of the date of your father's death, but other professionals have argued differently.

  3. #3
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    Default Re: Step Up Value

    It happens both ways LL. The remainderman basis is stepped up at the time the mother died and it gets stepped up again when father dies.

  4. #4
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    Default Re: Step Up Value

    Quote Quoting flyingron
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    It happens both ways LL. The remainderman basis is stepped up at the time the mother died and it gets stepped up again when father dies.
    I do not disagree with you. Its just that others have argued that a remainderman does not get any stepped up or additional stepped up basis as of the date of the life tenant's death. People on this forum, specifically. None of them are around any longer, but several of them argued that the only stepped up basis they received was when the original person passed away. Therefore I feel obligated to mention that there is more than one school of thought.

  5. #5
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    Default Re: Step Up Value

    Quote Quoting flyingron
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    It happens both ways LL. The remainderman basis is stepped up at the time the mother died and it gets stepped up again when father dies.
    So are you saying my stepped up basis would be the 10,000 that the land appraised for when my father died or would half of the land be at 4,000 for when my mom died and the other half at 10,000 when my dad died? Thanks

  6. #6
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    Default Re: Step Up Value

    The basis stepped up to the market value when mom died, but that's not particularly relevant unless Dad relinquishes his rights and you sell the property now. If you wait until he dies, it will step up when he dies.

  7. #7
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    Default Re: Step Up in Basis After Inheritance of a Partial Interest in Real Estate

    Quote Quoting dmiz
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    My question involves estate proceedings in the state of:

    My mother died 10 years ago and left my brother and I her half of the land she owned with my father and gave my father life estate. At the time of her death the land was worth 4000 an acre and now my dad has passed and the value of the land is 10,000 an acre. How do you figure stepped up value? Would half of it be at 4000 and half at 10,000 or because my dad had life estate would it be the 10,000 when he died?

    The exact facts matter, and it’s not clear to me what the facts actually are. Did your mother and father own the property jointly before she died? If so, how did they own it — tenants in common (TIC), joint tenants with a right of survivorship (JTWROS), or tenants by the entirety (TBE)? In what state did your mother and father hold this property? You say your mother passed her share at her death, giving your father a life estate and granting to you and your brother the remainder interest, right? But what about your father’1s share, if he was a co-owner before your mother died, what happened to that?

    If the facts were that your mother was the sole owner of the property in a non-community property state and in her will she granted to your father a true life estate in the property and granted to you and your brother the remainder interest, then in that case the entire property got a step-up in basis at the time your mother died, but would not get a step-up in basis at the time your father died.

  8. #8
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    Default Re: Step Up in Basis After Inheritance of a Partial Interest in Real Estate

    Quote Quoting Taxing Matters
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    The exact facts matter, and it’s not clear to me what the facts actually are. Did your mother and father own the property jointly before she died? If so, how did they own it — tenants in common (TIC), joint tenants with a right of survivorship (JTWROS), or tenants by the entirety (TBE)? In what state did your mother and father hold this property? You say your mother passed her share at her death, giving your father a life estate and granting to you and your brother the remainder interest, right? But what about your father’1s share, if he was a co-owner before your mother died, what happened to that?

    If the facts were that your mother was the sole owner of the property in a non-community property state and in her will she granted to your father a true life estate in the property and granted to you and your brother the remainder interest, then in that case the entire property got a step-up in basis at the time your mother died, but would not get a step-up in basis at the time your father died.
    Yes, they owned the property jointly. When my mother died she left my brother and I her half in her will and gave my father life estate on her half. When my father passed last year his will left my brother and I the other half. Does this change anything?

    Tenants in common and state of Illinois.

  9. #9
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    Default Re: Step Up in Basis After Inheritance of a Partial Interest in Real Estate

    Quote Quoting dmiz
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    Yes, they owned the property jointly. When my mother died she left my brother and I her half in her will and gave my father life estate on her half. When my father passed last year his will left my brother and I the other half. Does this change anything?
    There are multiple ways to own property jointly. So knowing just that it was jointly is not enough. If it was jointly with right of survivorship (most common with married couples) then her will was mostly irrelevant because your father would have received the entire thing through right of survivorship. Therefore you would be inheriting the entire thing from your father.

    If they owned its as tenants by the entirety, it would be basically the same.

    If they owned it as tenants in common then you and your brother would have received a deeded right to her share after she passed away as remaindermen, with your father having a life estate.

    The step up basis of the property in all three examples, according to me and flyingron is the same...you get a stepped up bases on the whole thing as of the date of your father's death.

    The step up basis according to taxingmatters is the same for example 1, probably the same for example two, but is different for example three. For example three your stepped up basis on 1/2 of the property is 4k, and for the other half is 10k.

    You are going to have to consult a tax professional in your area (and have them do your taxes this time) who is willing to take a position and back it up.

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