Property Received from a Decedent, What You NEED to Know

Written by Fletcher H. Rush | frush@farr.com

Will I owe any tax on receiving the property from the decedent?

 

Attorney Fletcher Rush

Fletcher H. Rush, Attorney
Fletcher practices in the areas of wills, estate planning, trust administration and tax planning.

A common concern for beneficiaries of a trust or estate is “will I owe any tax on receiving the property from the decedent?” The state of Florida does not impose a tax on beneficiaries who inherit or receive property from a decedent. The federal government does not impose a tax on inheritance, but instead imposes a tax on the estate of the decedent. In general, the recipient of property from a decedent is not responsible for paying any estate or gift tax due. This is because the internal revenue code imposes the primary liability for estate tax payment upon the executor, or personal representative, of the estate. However, in rare cases when the IRS is left with an unpaid estate tax bill, the beneficiaries may be responsible for the tax liability. Therefore, in Florida, recipients of property from a decedent generally do not have to worry about paying estate or inheritance tax.

Another question commonly asked is “will I owe tax when I sell the property I received from the decedent?” Just like other types of property dispositions, this depends upon your basis in the property. The general rule for property received from a decedent is that the basis is equal to the fair market value at the date of the decedent’s death. This fair market value rule is a stark contrast from the rule for gifted property: in general, the donee receives the donor’s basis with respect to gifted property. As an aside, you should always keep in mind any minimum distribution requirements from the decedent’s IRA.

A good example of this difference is parents giving a child their house. It is common for a couple to live in a house for a long time and therefore and their basis usually remains the price they initially paid for the house. The current real estate market notwithstanding, a house may have appreciated greatly since the initial purchase and therefore have a large amount of gain. By giving the home to a child, the parents give a large potential gain to the child that may be recognized upon the child’s disposition of the property.

Therefore, under the general rule, a surviving spouse receiving property owned entirely by the deceased spouse will receive a date of death valuation of the property. It is important to note the basis of jointly owned property is generally adjusted only to the extent the deceased spouse owned the property for tax purposes. A son or daughter who receives mom and dad’s house after they both have passed takes a fair market value basis in the property. This rule holds true even if mom and dad transferred the property to a revocable living trust. There are many exceptions to the general rule of date of death valuation and you should talk with your tax advisor for more information.