Estate and Trust Forum
| Publication year | 1977 |
| Pages | 1563 |
| Citation | Vol. 6 No. 9 Pg. 1563 |
1977, September, Pg. 1563. Estate and Trust Forum
As we are all aware by now, the 1976 Tax Reform Act fundamentally changes the rules for computation of the income tax basis for assets included in the estate of a decedent dying after December 31, 1976.
Prior to the Tax Reform Act, the tax basis for assets which had appreciated in value was stepped up or increased to the value of the asset as determined for federal estate tax purposes. This, of course, had the beneficial effect of wiping out the capital gain potential in the asset. Section 2205 of the Tax Reform Act added a new Section 1023 to the Internal Revenue Code providing, with certain exceptions discussed below, that the tax basis will not be stepped up to date of death value, but rather will be carried over to the estate and its beneficiaries, subject to certain adjustments.
These adjustments to cost basis, to be made in the following order are (a) adjust to increase basis by the amount of pre-1977 appreciation (the "fresh start" rule); (b) adjust to increase basis by the amount of state and federal death taxes paid by the estate attributable to the appreciation element in the estate assets; (c) adjust, if appropriate, to increase the overall basis to a $60,000 minimum (discussed below); and (d) adjust to increase basis by the amount of state death taxes paid by a beneficiary of the estate attributable to the appreciation element in the estate assets passing to the beneficiary.
Each of these adjustments, except that for minimum basis, is made on an asset-by-asset basis. The amount of the minimum basis adjustment, once computed, is allocated on a pro rata basis among the carry over basis assets in the estate. These adjustments are described well and in detail in John DeBruyn's, "Tax Reform Act of 1976---Estate and Gift Tax Revisions---Carry Over Basis," included in the materials of the 1976 Tax Reform Act Institute (October 1976) and published by Continuing Legal Education in Colorado, Inc.
Initially, it should be noted that not all property comprising the adjusted gross estate is designated and treated as carry over basis property. In addition to personal and household effects, the following assets are excluded from the carry over basis rules: proceeds of life insurance, income in respect of the decedent, distributions from qualified deferred compensation plans, and other assets
This column will deal with some of the aspects of this change which are of practical significance in estate administration, including: (1) the information which the Personal Representative now must obtain; (2) the $10,000 allowance for step up in basis for certain tangible personal...
To continue reading
Request your trial