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carryover basis

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carryover basis

In tax accounting, the retention of an earlier basis (adjusted acquisition cost) in property even though the property has changed hands.This happens most often in two instances: (1) Someone acquires property by gift. The basis is the same as it was in the hands of the donor, adjusted upward for any gift taxes paid by the donor.(2) In a 1031 exchange,in which like-kind property is exchanged for other like-kind property in a sort of perfectly legal accounting sleight of hand, the basis in property acquired is the same as the basis in the property given up,even though both might currently have substantially different fair market values.



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If the acquisition is structured as a stock acquisition, the acquirer simply takes a carryover basis in the acquired stock from the target shareholders.
Basis in Inherited Property: Whether to continue to provide for a step-up in basis for inherited property or to continue carryover basis, which presently is scheduled to apply only for 2010 (Under current law, the basis in a decedent's assets is "stepped-up" to date of death values so the assets can be sold without a taxable gain.
Since a sale to an IDGT is a disregarded event, the trust takes a carryover basis in the assets transferred.
 
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