South Dakota Estate Planning What is Cost Basis?

Farm CPA has a very interesting article on the important issue of "cost basis" in property.

Here are the general rules on cost basis for inherited property:

  • First, when property is inherited and passes through an estate, the original cost does not matter.  The new cost basis will be equal to fair market value of the property at the time of death (or 9 months later in some rare cases).  As an example, assume Farmer John owns 500 acres of farmland that he purchased in 1960 for $50,000.  In 2015, he passes away when the value of the farmland is $5 million.  His grandson Jim inherits the property and decides to sell it for $5.2 million.  His cost basis is $5 million and he will have a $200,000 long-term capital gain even if he sells it less than a year after inheriting the property (Capital gain property inherited is automatically long-term).