Understanding the Angel of Death Tax Break: A Guide to Inheritance Taxation
Definition & Meaning
The angel of death tax break refers to a provision in U.S. tax law that adjusts the basis of property inherited from a deceased person. When a beneficiary receives property, its value is typically determined by its fair market value at the time of the decedent's death. This means that any increase in the property's value during the decedent's lifetime is not taxed in their estate. Instead, the new owner will only pay capital gains tax on any value increase that occurs after the decedent's death.
Legal Use & context
This tax provision is primarily relevant in estate planning and inheritance law. It is used to determine how much tax a beneficiary may owe when they sell inherited property. Understanding this provision can help individuals manage their estate effectively and minimize tax liabilities. Users can utilize legal templates from US Legal Forms to create wills and other documents that address these issues.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A person inherits a house valued at $300,000 at the time of their parent's death. If the house was originally purchased for $200,000, the beneficiary's basis is now $300,000. If they sell it later for $350,000, they will only pay capital gains tax on the $50,000 increase in value after the parent's death.
Example 2: (hypothetical example) A beneficiary inherits shares of stock worth $50,000 at the time of the decedent's death. If the stock was bought for $30,000, the new basis becomes $50,000. If the beneficiary sells the stock for $70,000, they owe capital gains tax only on the $20,000 gain realized after the death.