Is there Capital Gains Tax When I Sell an Inherited Asset? Step-Up Basis in New York Estates

When a beneficiary inherits an asset from a New York decedent and sells it, there’s little, if any, capital gains tax. The IRS gives credit to the fact that the person who inherited the property did not buy it so that person has no gains to realize. But if the property went up in value from the time the property was inherited, there is a capital gains tax on that increase.

In technical terms, we say that a person who inherits property in New York receives a step-up in basis. Simply put, the basis is the base value of the property when it was first acquired, the value used to calculate gains from the sale. When the property is inherited, that value is reset.

Example 1: Your aunt owned some stock that she bought a long time ago at $5.00. At the time she passed away, the stock is was worth $20.00. The basis of the stock that you inherit from your aunt gets reset to $20.00 and not the $5.00 amount that she originally paid for it. Later, if the stock goes up to $22 and you decide to sell it, you only pay capital gains on $2.

Example 2: Your aunt owned a house that she bought 30 years ago for $20,000. It was worth $500,000 when you inherited it 5 years ago. Now you decide to sell it, and it fetches $530,000. You will not pay capital gains on $510,000, only on $30,000.

Note how if your aunt would have given you the stock or the house while she was still alive, you would not have been able to take advantage of the step-up basis and pay large amounts of capital gains tax. That is why it is important to discuss estate issues with a New York estate attorney.

If you are a beneficiary of a decedent’s estate and need New York or federal estate tax assistance or assistance with other estate planning or probate matters, it is recommended that you consult with a New York probate and estate attorney.

If you wish to speak to a New York estate attorney, call the Law Offices of Albert Goodwin at (212) 233-1233.