What happens to tax basis upon death of a business partner?
Upon an individual’s death, the estate must report the tax basis of all assets for estate tax purposes based on their fair market values at the date of death or an alternate valuation date if elected.
Assets exceeding their tax bases receive a step-up to their valuation date value, while those valued lower receive a step-down. The 2015 Surface Transportation and Veterans Health Care Choice Improvement Act added reporting requirements to prevent basis reporting abuses, mandating estate disclosures to beneficiaries.
For partnership interests, a partner’s death triggers complexities in tax basis. A step-up in outside basis applies, but only the partnership’s inside basis step-up allows for current deductions. This hinges on the partnership’s IRC Sec. 754 election status.
Beneficiaries receiving estate property must now use values from Form 706 Estate Tax Return as their income tax basis, following new IRC rules enacted to ensure consistency in reporting.
For more information on what happens to tax basis upon the death of a business partner, contact a ShindelRock tax professional.