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A basis is an important word when it comes to taxes. It is also known by other names -- cost basis, adjusted basis and tax basis. It does not matter what you call it, original basis is important when it comes to paying taxes for an asset. When determining the original basis for estate tax, usually the fair market value at the asset is taken at the time of the decedent’s death. Let us take an example to understand how original basis is used to determine estate taxes on a particular asset.
If you inherit stock, your basis is the value of the stock on the date of the decedent’s death. Assuming that the stock value has appreciated, the basis is increased to the market value. Therefore, the tax on the profit built up by the previous owner is completely forgiven. This means that you have pay taxes just on the appreciated amount.
On the other hand, if the estate is large, the original basis used to determine estate taxes would be at the value of the estate six months after the decedent’s death.
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