What is the general basis of property inherited from a decedent?

The basis of property inherited from a decedent is determined by its fair market value (FMV) on the date of death or, if applicable, the alternative valuation date. This concept is grounded in tax law, which establishes that inherited assets receive a "step-up" in basis to their FMV at the time of the decedent's death. This means that beneficiaries can avoid capital gains taxes on any appreciation that occurred during the decedent's lifetime, as the basis for tax purposes is reset to the property's value at the time of inheritance.

This step-up basis is particularly beneficial for heirs because it allows them to sell the inherited property at its date-of-death FMV without incurring tax on the appreciation that occurred prior to inheritance. For example, if a property was originally purchased for $100,000 but had a fair market value of $300,000 at the time of the decedent's death, the inheritor would have an adjusted basis of $300,000. If they later sold the property for $310,000, they would only be subject to capital gains tax on the $10,000 gain, instead of on the entire appreciation from the original purchase price.

This rule simplifies the tax implications for heirs and avoids the complexities