• Skip to primary navigation
  • Skip to main content

The Hayes Law Firm

Estate and Elder Law Information Center

  • (626) 403-2292
  • Attend a Free Webinar
  • Home
  • Our Firm
    • About Our Firm
    • Virtual Estate Planning
    • About The American Academy
    • Advantages of Working With Our Firm
    • Attorney and Staff Profiles
    • Speaker Connection
    • Multi-Media
    • Reviews
    • College Internship Program (Marketing)
  • Estate Planning
    • Asset Protection & Business Planning
    • Estate and Gift Taxes: Figures
    • Family-Owned Businesses
    • Financial Planning Assistance
    • Incapacity Planning
    • IRA & Retirement Planning
    • Legacy Planning
    • LGBTQ+ Estate Planning
    • Pet Planning
    • SECURE Act
    • Special Needs Planning
  • Probate Process
    • CA Probate & Estate Planning Savings Calculator
    • California Probate Process
    • Common Probate Questions
    • Probate Resources
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • The Mourner’s Bill of Rights
      • Trust Administration & Probate Definitions
      • When a Loved One Passes Away With a Trust
      • When a Loved One Passes Away With a Will
    • Why Hire a Probate Attorney?
  • Trust Administration
    • Trust Administration Resources
    • Trust Administration Assistance
  • Resources
    • Feature Articles by The Hayes Law Firm
    • DocuBank
    • COVID-19 Estate Planning Resources
    • Educational Heroes
    • Elder Law Reports
    • Estate Planning Resources
      • Estate Planning Checkup
      • Estate Planning Definitions
      • Estate Planning Articles
      • Estate Planning Reports
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Frequently Asked Questions
      • Estate Planning FAQ’s
      • FAQ’s for Families Without an Estate Plan
      • Legacy Wealth Planning FAQ’s
      • LGBTQ Estate Planning FAQ’s
      • Trust Administration & Probate FAQ’s
    • LGBTQ+ Resources
    • Newsletters
    • Special Needs Resources
  • Elder Law
    • Are You A Caregiver for a disabled loved one?
    • Coping With Alzheimer’s
    • Emergency Medi-Cal & Nursing Home Planning
    • Guardianship & Conservatorship
    • Hospice Care
    • Medi-Cal Planning
    • Veteran’s Benefits
  • Seminars and Webinars
  • Contact Us
    • Preparing for Your Initial Consultation
  • Blog

A Quick Guide for Basis

William Hayes · Apr 30, 2012 ·

Compliments of Our Law Firm,
By: The American Academy of Estate Planning Attorneys

The word basis can have a lot of different meanings. When we’re talking about taxes, though, it has one very specific definition. Basis is the yardstick used by the Internal Revenue Service to determine how much tax you pay on an asset when you sell or otherwise dispose of it. Sell property for more than your basis, and you have a gain that might result in a tax bill. Sell property for less than your basis, and you may be able to claim a tax loss.

To determine your basis in an asset, you have to go back to the point at which you first acquired it. If you bought the property, your basis is the amount you paid for it. Your basis can increase if you make certain qualifying improvements to the property, or it can decrease along with tax depreciation of the property.

Property you receive as a gift comes to you with the donor’s basis. Imagine your Uncle Joe gives you the beach cottage he bought for $20,000 back in 1974. If you decide to sell the property, you’ll pay tax on the amount by which your selling price exceeds the amount Uncle Joe originally paid for it (plus certain amounts spent on improvements).

Inherited property is subject to special rules. It gets what is called a step-up in basis. Imagine you inherit Uncle Joe’s beach cottage after his death rather than receiving it as a gift during his lifetime. In this situation, your basis in the property is not the amount your uncle originally paid for it. Instead, your basis is normally the value of the property at the date of Uncle Joe’s death. So, if the property is worth $200,000 when Uncle Joe passes away, this is your basis, rather than the $20,000 he originally paid for it.

An understanding of basis can help you decide which assets to gift during your lifetime, and which to wait and distribute using your Will or Trust. It makes sense to gift property with a basis that is close to its fair market value. This minimizes the recipient’s potential tax bill should he or she decide to sell the asset.

On the other hand, you might want to hold on to property that has a basis much smaller than its fair market value. Transferring this property after you are gone means closing the gap between basis and fair market value, and could result in significant tax savings to the recipient.

An experienced estate planning attorney can help you evaluate the potential tax issues facing you and your beneficiaries and structure a plan that best accomplishes your goals.

Sign up for our newsletter and get our news straight to your inbox!

Stay Informed

Where we are

The Hayes Law Firm
729 Mission St. #300
South Pasadena, CA 91030
Phone: (626) 403-2292
Fax: (626) 403-2299
Proud Memberaaepa

Office hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 5:00 PM

Map

map
  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter
  • YouTube

The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

© 2022 · American Academy of Estate Planning Attorneys, Inc. | Disclaimer | Privacy Policy | Sitemap | Contact Us