In the News: Haleh Moddasser on Step-Up in Basis

2 minutes

Before selling a highly appreciated home to simplify an inheritance, it is important to understand a tax rule that could significantly change the outcome.

Haleh Moddasser, CPA, Wealth Advisor and Managing Director, recently spoke with Christy Bieber of Moneywise about how step-up in basis may affect the capital gains taxes associated with an inherited property.

When Selling First May Have Unintended Consequences

The article considers a hypothetical homeowner who purchased a condo for $500,000 that is now worth $1 million. Facing a terminal illness, she wants to sell the property and pay the capital gains taxes herself rather than leave that responsibility to her son.

Although the decision is well-intentioned, selling during her lifetime could trigger a tax bill that her son might not face if he inherited the property instead.

Haleh Explains What Changes at Inheritance

Haleh explained that when a child inherits a home, its cost basis generally adjusts to the property’s fair market value as of the owner’s date of death.

That new basis becomes the starting point for determining the heir’s capital gain if the property is later sold.

In the example presented by Moneywise:

  • The homeowner purchased the condo for $500,000
  • The property is worth $1 million when her son inherits it
  • His basis would generally adjust to $1 million
  • If he sells it soon afterward for approximately $1 million, there may be little or no taxable capital gain

“This is a substantial savings depending on the size of the gain within the home,” Haleh explained.

Her insight highlights why selling a property simply to take care of the taxes for an heir may have the opposite effect. The timing of the sale and the way the property is transferred can materially change the tax calculation.

Consider the Homeowner’s Broader Needs

The potential tax savings do not automatically mean the homeowner should keep the property.

Care expenses, housing needs, financial security and quality of life may all influence whether selling makes sense. If the homeowner needs the proceeds to support her care or reduce financial stress, selling may still be the appropriate choice.

Depending on the circumstances, she may also qualify to exclude a portion of the gain from the sale of a primary residence.

Haleh’s explanation is an important reminder to understand the tax implications before making an irreversible decision. Reviewing the property’s cost basis, current value and role within the broader estate plan can help families evaluate the available options with greater clarity.

Read the full article on Moneywise

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

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