Estate and Medicaid Recovery

[tonia2021]

An estate had to sell of its assets and all proceeds went to the State for Medicaid Recovery. Does this cause a taxable event to the estate? Does the fact that all the proceeds were sent to the state matter?

[Bees Knees]

An estate had to sell of its assets and all proceeds went to the State for Medicaid Recovery. Does this cause a taxable event to the estate? Does the fact that all the proceeds were sent to the state matter?

Yes its a taxable event. If the estate sold assets for more than the estate's basis in the assets, the difference is taxable as a capital gain. The fact that the estate was liable for paying back Medicaid is irrelevant.

[tonia2021]

Does's the estate get a step-up in basis? Or does the estate have the same basis as the individual at date of death?

[Bees Knees]

All assets get stepped up basis to FMV as of the date of death, with the exception of IRD (income in respect of the decedent). IRD for things like IRAs and annuities are taxable to the estate (or beneficiaries).