When an heir inherits property, the basis resets to its fair market value at the owner's death, not the original purchase price. If a house cost $100,000 but was worth $400,000 when the owner died, the heir's basis becomes $400,000. The step-up applies in most cases, though estate structure and residency can affect the outcome.
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For someone that, like this one, his father just passed away, so his basis would be zero, or do they do when the title transfers to his name, the cost of the property at that time?
I believe it's the latter, but this is, this is a little bit out of my league. But isn't it a step-up basis, David?
Yes. Yes.
It would.
When it transferred to his name, he would get a revalue. So if his dad paid $100,000 and now it's revalued at $400,000 and he sells it for $500,000, he's got the basis of $400,000 versus—
Okay. So thank you.
It does change.
And Dave, if I'm not mistaken, it also matters— it could matter if the estate plan was set up a little differently, correct? I just want to be careful what we're telling everyone too, because I said what you said and then— but I think there's a Caveat to that, right?
I, I, I don't know that that would be a Mallory question. I'm not 100% sure on that part.
Just be careful with that, with the death piece. But there is a step-up basis in general.
Um, just, just, I know this is good conversation in general, but this is his house. His dad actually lived in Clearwater, Florida, 10 hours away. So he moved from Europe to Tennessee to take care of his dad 10 hours away.
So, well, we did some good scenarios there either way. Okay.
Yeah, it gives you good, good theory.
Okay. So sorry. So how long has he been there then?
3 and a half years, I think, is when he moved here from Europe.
Okay. So he doesn't have that issue. Back to the same thing. Yeah.
So he bought this house. It's in his name, free and clear. Just, I guess, 10 hours is closer than halfway across the world. So.
Yeah, right. I got, I got you. Okay. Well, not only am I equipped to call Brian, but we had a little discussion about some what-ifs there. That was good.
