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Did you know the IRS is nice?  It must sound as strange to read as it is to write.  But in this one instance the IRS does a very nice thing for the loved ones of a person who passes away:  There is a step-up in cost basis for all assets included in the decedent’s estate.

The easier way to understand it is that if the person who dies owns something, capital gains is effectively wiped out.  That’s right, capital gain tax will be zeroed out as of the day the person died.

Even better is that for married couples in New Mexico and Arizona, the same thing happens when we lose our spouse – the entire estate (all of our assets) are “stepped-up”.  This is because the IRS treats community property differently than separate property (Arizona and New Mexico are two of the nine community property states in the country).

But there are traps for the unwary.  We have clients who have given property to their adult children, trying to “make things easier”, and what ends up happening is when that property is sold, the kids are stuck with a large capital gains tax bill.   The gift was not only the property, but also the cost basis in that property.

Setting up your estate plan is, in part, getting your wishes documented. But it is also to take advantage of the laws and privileges that are on the books.  Come in and discuss your goals and our team of experienced estate planning attorneys can help create your plan to work within the law, and even to let your loved see that the IRS can be nice.

jim-plitz    Contributed by Morris Hall, PLLC  Albuquerque, Santa Fe and Las Cruces Estate Planinng Attorney and Partner, James P. Plitz.

   About Morris Hall, PLLC:
At Morris Hall, PLLC we have focused our legal practice on estate planning for over 45 years.  Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects.  We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Carefree, Tucson, Oro Valley, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.

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