Don't confuse 'stepped-up basis' with property tax basis

'Stepped-up' refers to adjusted-cost basis for inherited property
By: Robert J. Bruss: Inman News
DEAR BOB: I read your recent item about property "stepped-up basis" with great interest, but I wish you had taken it further. Suppose an owner deeds you a house purchased for $100,000, which is now worth $300,000, and you live in it the rest of your life. Won't you be paying taxes on $100,000 and be way ahead of the game? -Martin A.

DEAR MARTIN: You seem to be confusing apples with oranges. "Stepped-up basis" to market value refers only to the adjusted-cost basis for inherited property. In other words, the owner died and you inherited the property. Stepped-up basis is very important when the heir decides to sell the inherited property.

For example, if your basis for a property is $100,000, but it is worth $300,000 on the date of your death, your heir's stepped-up basis is $300,000. When the heir sells that property, his taxable capital gain is only the amount exceeding $300,000.

This is a huge tax savings over a lifetime gift. Instead, if you give the same property to someone before you die, that person takes over your low $100,000 adjusted-cost basis in this example. If the donee then sells that property for $300,000, there is a $200,000 taxable capital gain.

Depending on local property tax assessment laws where the real estate is located, and the relationship of the person receiving the property, that person might be able to take over your current below-market property tax assessment. However, that has nothing to do with "stepped-up basis" for inherited property.

HOW TO TRANSFER YOUR HOME LISTING TO A BETTER AGENT

DEAR BOB: We are not happy with our listing agent, but we have a signed listing contract. How can we change agents or sell for sale by owner (FSBO)? -Leah M.

DEAR LEAH: I hope you didn't sign a long-term listing beyond 90 days.

If you are unhappy with your listing agent, your best recourse is to contact the agent's brokerage owner or manager. Explain the situation and ask that your listing be transferred to the firm's top sales agent for your area to complete the listing term.

Transferring a listing means the original listing agent will get a referral commission when your home sells, typically 10 percent of the office's gross commission. A listing transfer keeps everybody happy at that brokerage so the firm will actively promote your listing, especially your new listing agent.

In today's slowing real estate home sales market, you definitely don't want to risk become a FSBO. If you want to receive top dollar, don't even consider selling FSBO because you need all the professional help you can get.

LIVING TRUST AVOIDS PROBATE COURT COSTS AND DELAYS

DEAR BOB: I have a living trust. After I die, what does the final beneficiary have to do, such as filing court papers? I have followed your column for many years and have done very well investing in real estate. -Gloria T.

DEAR GLORIA: Congratulations on your successful real estate investments.

When your revocable living trust "matures" after you pass on, your successor trustee (such as a surviving spouse, trusted friend or relative, or bank trust department) will distribute your living trust assets according to the terms of your living trust.

No probate court action is required. It is that simple. More details are in my special report, "24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.