How is the stepped up cost basis important?
The answer is that it saves you capital gains taxes. In the tax year 2010 long term capital gains tax is 15% of the profit over your cost basis. When you inherit assets you adopt the value that exists at death. There is a later 6 month evaluation option but that topic is too complicated to address here. Let me give you an illustration of how the step up works at the date of your hypothetical uncle’s death and if he sold the property during his lifetime: Your uncle bought Commercial real estate for $40,000 in 1928 and stock for $10.00 in 1988. When your uncle sells those assets or dies on March 30, 2010 the Commercial real estate is worth $800,000.00 and the stock is worth $80.00. If your uncle had sold this property during his lifetime he would have paid a 15% long term capital gains tax on the profit of the land and stock of $114,010.50 to the IRS. Any state of residence income tax would be extra. If on the other hand, your uncle decided to not sell but hold these appreciated assets t
