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#1: Inheritance and step-up question

Posted on 2006-03-07 19:42:04 by skip5700removethis

Mom sells investment property and takes a note. Mom dies. Daughter
inherits note with unpaid installments.

How are future installments taxed to daughter?

-HW "Skip" Weldon
Columbia, SC

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#2: Re: Inheritance and step-up question

Posted on 2006-03-07 20:02:30 by BreadWithSpam

On 2006-03-07 13:42:04 -0500, "HW \"Skip\" Weldon"
&lt;<a href="mailto:skip5700removethis&#64;hotmail.com" target="_blank">skip5700removethis&#64;hotmail.com</a>&gt; said:

&gt; Mom sells investment property and takes a note. Mom dies. Daughter
&gt; inherits note with unpaid installments.
&gt;
&gt; How are future installments taxed to daughter?

Is there any reason to think it wouldn't be taxed just like any other
bond she could have inherited?

There's an outstanding amount of principal, a current value (which
may - very likely doesn't - match the outstanding principal - this
is important for estate tax purposes, if the estate is large enough),
and each payment includes two pieces - a return of principal, which
is untaxed, and interest, which is taxed as income. AFAIK, that is.

&quot;Step-up&quot; is an issue for capital gains and the sale of an
appreciated asset.


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#3: Re: Inheritance and step-up question

Posted on 2006-03-08 17:17:52 by Mechanics of Money Financial BBS

Here is a guess: for federal income tax purposes, the daughter will
report the income using the Mother's formula pursuant to IRC Section 72
(income in respect of a decedent exception). For federal estate tax
purposes, the estate will include the fair market value of the note.


Gary Brolis
<a href="http://www.MechanicsofMoney.com" target="_blank">http://www.MechanicsofMoney.com</a>
<a href="http://www.MechanicsofMoney.com/blog.php" target="_blank">http://www.MechanicsofMoney.com/blog.php</a>

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