For those who seek answers to federal income tax questions in estate planning and administration, this treatise provides a comprehensive analysis of the income tax law with respect to property acquired from a decedent, as well as planning considerations before and after death.

Is income tax imposed on property transferred at death?

If yes, then income tax is potentially imposed at a rate of 37% in 2024, or 20% for capital gains plus 3.8% for net investment income. I.R.C. § 1; I.R.C. § 1411.

If no, then the effective income tax rate is 0%.

Income Taxation of Property Acquired from a Decedent

The Internal Revenue Code provides favorable income tax rules that impact all individuals. Property acquired from a decedent is excluded from gross income under I.R.C. § 102 and receives a new basis under I.R.C. § 1014.

Taken together, these sections permit appreciation to escape income tax entirely at death. By virtue of the gross income exclusion under I.R.C. § 102, property acquired from a decedent is not subject to income tax. By virtue of the step up of basis under I.R.C. § 1014, any built in gain for property acquired from a decedent is eliminated.

The rules are not subject to any phaseout, floor, haircut, or other dollar limitation.

There is a risk, however, of inadvertently foregoing favorable results because the Code contains discrepancies and potential traps for the unwary.

Moreover, traditional estate planning focuses on removing property from the gross estate to achieve favorable estate tax results, but to the detriment of income tax results.

The purpose of this treatise is to provide a resource to tax practitioners and others who advise on estate and income tax matters with planning opportunities and traps to consider before and after death.

With proper planning, discrepancies under the Code are cured, traps are avoided, and traditional estate planning techniques combined with additional income tax planning lead to favorable estate and income tax results.

Matthew S. Beard, P.C.

3838 Oak Lawn, Suite 1220

Dallas, TX 75219

(214) 434-1813