Since the time that Congress experimented with these two carryover tax basis
regime initiatives, several fundamental changes have transpired that enhance the viability of a permanent carryover tax basis
regime and underscore the need for reform.
1262 provides long awaited relief, solving all these problems by eliminating the requirement to reduce the seller's tax basis
by the cost of insurance charges.
Indeed, a purchaser may realize significant economic benefit as a result of a tax basis
step-up, and a seller may in turn have additional leverage in negotiating the purchase price or other terms of a transaction.
Upon death, the decedent's estate is required to report as tax basis
for estate tax purposes the fair market values of all applicable assets-either the values at date-of-death, or at the alternate valuation date, if elected.
Both transactions are treated as a sale or exchange, resulting in capital gain to A for the amount received in excess of his tax basis
, assuming A held the stock as a capital asset.
If property is sold within a family and the FMV of the property is less than its tax basis
, the pail gift--part sale tax result can be more attractive than treatment under IRC section 267 for three reasons: First, the transferee's tax basis
is generally higher than it would have been in a section 267 sale.
Deductible casualty losses; payments received for granting an easement: and residential energy and first-time homebuyer credits may result in taxpayers' reducing the tax basis
in their homes.
Proponents of this technique argue that, as long as the spouse was granted the general power of appointment at least a year before the spouse's death, the income tax basis
should be adjusted to fair market value at the date of the spouse's death.
The taxpayer may even borrow additional funds to exchange for a property of greater value, increasing their tax basis
for another round of depreciation.
In each of these circumstances, the taxpayer who did not maintain records supporting the tax basis
of the personal residence would be at a disadvantage at the time of sale of that residence.
However, the general division rules and other provisions do not account for property with a disparity between the property's fair market value (FMV) and adjusted tax basis