I had to figure out what you guys were talking about with the step-up basis.
(I’m an engineer, not an investor… and I don’t sell houses a lot so I don’t think about capital gains on a daily basis.)
I’m trying to figure out what you guys are suggesting.
– If a person inherits a house (free and clear) the cost basis is that of the time of inheritance. This is done for establishing whether estate taxes need to be paid. In fact this can happen several times on a home if the estate is large – estate taxes may kick in on half the house if half the estate is above the threshold when the first spouse dies and they don’t have a trust.
– In my case I paid full market for the house. My dad was still alive. I’m not an only child. The proceeds were his and eventually I got some back as my portion of his estate. But he could have gone to Vegas and bet it all on Red. Prop 58 does not address the form of transfer – sale, inheritance, gift. All are allowed in a prop 58 transfer. Prop 58 does not address estate taxes. The feds and CA still require estate taxes if the value of the estate (including the market value of a home if there is one) are above a threshold.
I guess I’m not too worried about capital gains when I sell, since I plan on living here till I die… But to suggest that the cost basis should be different than what I paid (full market value), I don’t get it.
Or am I misinterpreting what you guys mean about the step up cost basis. Speak slowly when you explain… I’m not an accountant or investor. 😉
