Q. I am a resident of Pennsylvania. Does my N.J. vacation home get a step-up in basis when my children inherit it?
A. It’s important to understand how basis works.
The basis of property is primarily an income tax term and is important for determining gain or loss on the sale of property, or, for example, the amount of depreciation that can be taken, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.
When you die, property that you own or control – such that it is included in your taxable estate – will be valued as of the date of death. Your children who inherit the property will take it with the date of death value as his or her basis, Romania said.
“The step-up in basis does not depend on whether or not you pay estate or inheritance tax on the property, either state or federal,” she said. “However, if you file a federal estate tax return, the value of the property reported on the return must be consistent with the value reported by your children for the property as their basis in reportable transactions.”
If you own only a portion of the real property at your death, it is possible that only that portion will get a step-up in basis, she said.
And because you live out-of-state, make sure you and your heirs – we don’t know where they live – understand the so-called “exit tax.”
Email your questions to moc.p1534715480leHye1534715480noMJN1534715480@ksA1534715480.