Need to research this, but was hoping one of you could give me an answer to at least get me started. Property B was received in a Like Kind Exchange. Property A, the property given up in the exchange, was fully depreciated rental. If the owner dies, and Property B is inherited by son, does he get a step up in basis, or does the basis remain the same as established in the exchange? And also, if an exchange is in process, but not yet completed, and one of the parties dies before completion of the transaction, will the deceased's son (only heir) be able to complete the exchange? Son is my client and has posed these questions. His dad's not doing too well. Thanks!
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Inherited property
Inherited property will get a stepped-up basis in the normal way if it is includable in the taxable estate. Of course, if there are joint owners or if it is transferred by gift or through a trust, different rules may be involved.
That's an interesting question about dying during a delayed exchange. Title should be the same on both sides of the exchange. For the heirs to become directly involved or use a holding company or other entity during the exchange would certainly be an unnecessary complication. I'd guess a decedent's personal estate could complete the exchange and distribute the replacement property to heirs. But can property titled after the date of death get a stepped-up basis? Presumably the "exchange credits" held by the intermediary are an asset for estate tax purposes, and subject to the step-up there.
The TMI message board is useful for its purposes, but you really should get competent legal advice on this, especially if the heirs want to sell the replacement property within two years. Stepped-up basis probably applies to the new property, but related-party rules might revoke 1031 treatment and cause gain to be recognized on the original property. -
Thank you for your reply, and the suggestion that client get legal opinion. Some of his questions (and his anticipation of Dad's passing) are getting too convoluted and far afield for me. Cheers!Comment
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If Dad is expected to pass soon, why do an exchange at all.? Let son inherit the property and then sell with the stepped up basis.Comment
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